Forming an Kansas LLC takes a lot of planning. Between the Articles of Organization, annual reports, potential tax registration, and more, there’s a lot to consider. And paperwork and startup costs aren’t the only necessary tasks. You’ll also want to set up your LLC to run smoothly and avoid legal troubles after it’s been registered with the state.
That’s where the LLC operating agreement comes in.
Time-Saving Hack: There are a handful of online LLC websites that can form an LLC for you and include a free customizable operating agreement. ZenBusiness, though, is the only one that offers a free operating agreement in every package.
What is an LLC Operating Agreement?
An operating agreement gives your business structure and official procedures. It designates ownership, establishes operations, defines member responsibilities, and provides legal protection. Essentially, it lays out everything someone might need to know about your LLC. And it’s an internal document, so there’s no filing or fees involved.
Whether you’re starting a multi-member or single-member LLC, we strongly recommend completing an operating agreement. It’ll benefit and protect you for as long as you’re in business.
Am I Required to Have an Operating Agreement in Kansas?
No, operating agreements aren’t mandatory documents for Kansas LLCs. However, they are incredibly beneficial and we strongly recommend creating one.
Not only does an operating agreement establish standard procedures, helping your LLC run smoothly, but it also provides protection for your assets in potential legal actions. It influences a broad spectrum of business activities and without it, you won’t be able to use it to settle internal or external disputes that may arise.
Benefits of Creating an Operating Agreement
You want what’s best for your business. Months or years in the future, you want it to be a profitable and thriving endeavor. Having an operating agreement in place will set up your LLC for sustained success.
It requires some legwork, but it’s well worth it. Just look at some of the benefits:
- Officially designates how the ownership is split up (the percentage each member/manager owns), so there are no disputes.
- Standardizes office and company operations to improve efficiency
- Outlines the procedures for member additions and resignations, resident agent changes, dissolutions, and more, so there is no confusion.
- Avoids Kansas’s “default rules,” which define baseline procedures for any LLC without an operating agreement and aren’t necessarily the best for your business.
- Grants you greater respect from Kansas courts.
Free Kansas LLC Operating Agreement
When starting on your operating agreement, your first idea might be to check the Secretary of State website for an official form or instructions. Unfortunately, you won’t find either. Since it’s an optional document – and fairly customized for each LLC – the Secretary of State doesn’t provide an official form.
So, you’ll need to create your own, but don’t be intimidated! You don’t need to be an attorney or expert writer to draft an effective agreement. Plus, you can find plenty of free templates online to help you with the structure and legal terminology. While most of these templates are good options, a great starting point is one that you can get free through an affordable LLC service like ZenBusiness or Northwest Registered Agent.
Whether you’re using a template or starting from scratch, here’s a quick and easy guide for what to include:
Owner or Member Information: Names and mailing addresses.
Company Information: Your LLC’s name, registered office, and principal office.
resident agent Information: The name of your resident agent, their address, and contact information.
LLC Formation: The date you filed or will file your Articles of Organization with the Secretary of State.
Business Purpose: The type(s) of business your LLC will be doing in Kansas.
Term: How long your LLC in Kansas will be valid, typically until you file for termination.
Capital Contributions: The amount of money each member has invested in the LLC.
Profits, Losses, and Distributions: How income and debts are allocated among members and methods for distributing funds.
Ownership Percentage: How much of the company each member owns.
Management and Roles: The managerial structure and decision-making processes, naming who is in charge or certain operations.
Compensation: How members/managers are compensated and reimbursed.
Bookkeeping: Accounting procedures and member account policies.
Tax Treatment: Whether your LLC will be taxed as a Sole Proprietorship, Partnership, S-Corporation, or C-Corporation.
Member Additions: The procedure for bringing on new members – how they will be admitted, if they’re entitled to income, any expenses they will owe, their roles, etc.
Member Withdrawal: Procedures for the resignation, expulsion, retirement, or death of an existing member.
Amendment Procedures: How your LLC will approve changes to the operating agreement. Usually, it’s through a majority vote by the members.
Dissolution: What happens when you terminate your LLC. How your members will split up the remaining assets or debts.
You don’t always need to include all of the above. If any don’t apply to your LLC, feel free to leave them out. Still, it’s a good idea to cover as many bases as possible. Even if you’re a single-member LLC, you should consider including as many sections as possible to accommodate future changes. Otherwise, years into the life of your business, you may run into a dispute over something you didn’t include, and you won’t be able to fall back on the operating agreement.
When you’ve finished your draft, it’s wise to go back through and make sure that you haven’t missed anything important. You also need to get it approved and signed by each of the LLC’s members. The operating agreement is an internal document, so the Secretary of State doesn’t need a copy. Keep it safe in your own files, as you’ll likely need to reference and revise it down the road.
Making Changes to Your Operating Agreement
For better or worse, your business is going to change. As you begin doing business in Kansas and, hopefully, raking in profits, the LLC will grow and evolve. It will develop different needs and more complicated processes. Keep everything running smoothly but updating your operating agreement as changes occur.
First, all LLC managers/members must approve the change. To seek approval, follow the guidelines you already outlined in your operating agreement for ratifying amendments.
Because it isn’t recorded with the state, modifying your agreement is as simple as making changes to the Word document or PDF you keep in your own files.
For example: your resident agent resigns and, following Kansas law, you appoint a resident agent service to take their place. Simply pull up your electronic file, enter the new agent information, save it, and print a copy. Make sure you keep a draft of the previous document as well so you can track the changes you’ve made, just in case the state ever has any questions.
Hiring an Attorney
Worried that you might miss a critical detail? Uncomfortable with legal minutiae? If you want to ensure your operating agreement provides for all possible outcomes and disputes, you might consider hiring an attorney to review it or write it entirely.
Some attorneys have a flat rate for drafting an operating agreement; others bill by the hour. Either way, you’ll only need their assistance for a limited period of time. Use a site like Avvo to find the right fit for your business. Avvo’s database lets you sort by location, rate, and more – it even shows Kansas lawyers that specialize in LLCs.
Hiring an LLC Formation Service
The LLC formation process, with its forms and fees, might make you want to throw up your hands and surrender. Don’t do that! Instead, consider hiring an online service like ZenBusiness or Northwest Registered Agent.
An online service like we mentioned earlier can quickly take care of all your necessary filings. Plus, they’ll create a customized operating agreement for you!
Given the amount of time you would spend drafting an agreement from scratch, a formation service is worth it. Not only will you receive a meticulously researched and crafted operating agreement, but you’ll also be able to spend more time growing your business, planning your next move, or just relaxing.
Even though it’s not a required document, the Kansas LLC Act makes frequent reference to the operating agreement, outlining the business aspects it can govern.
The term, “unless otherwise provided in an operating agreement” appears frequently throughout the LLC Act (Kansas Statutes, Ch. 17, Article 76), before a majority of the laws set out for LLCs. This means that an LLC’s agreement is the authority on a majority of its aspects, including business activities and conduct, member/manager duties and conduct, decision-making procedures, profit distribution, tax structure, dissolution, and more. Consequently, the state’s rules on these subjects will only be applied if they aren’t addressed in the operating agreement.
It’s clear that the operating agreement has a lot of power in determining your LLC’s processes, but it doesn’t completely override state law. It cannot, for example, authorize any LLC or member actions that are illegal. Further, it does not shelter your LLC from the state’s business maintenance requirements or the penalties for ignoring them. So, if you skip an Annual Report or fails to maintain a resident agent, the operating agreement will not stop the state from administratively dissolving your LLC.
As you write your operating agreement, you can consult the LLC Act or an attorney for questions about how it interacts with the law. And remember to make your document as specific and detailed as possible. In doing so, you’ll retain control over your company’s activities, assets, and much more.