Forming a New Jersey LLC takes a lot of planning. Between the Certificate of Formation, business licenses, franchise taxes, 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.
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 New Jersey?
No. New Jersey LLCs aren’t required to maintain an operating agreement, but this could put them at a disadvantage. Operating agreements can give you control over many aspects of your business, standardizing procedures, allocating assets, and setting you up for success.
If you want to have a smoothly-running LLC, protection of personal assets, and a safety net in case of future disputes, you’ll want to create an operating agreement. We strongly recommend that every New Jersey LLC have one.
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, registered agent changes, dissolutions, and more, so there is no confusion.
- Avoids New Jersey’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 New Jersey courts.
Free New Jersey LLC Operating Agreement
You’ve made the admirable decision to draft an operating agreement, and now you’re sitting at your computer or with a pen and paper, wondering where to begin. Unfortunately, you won’t find guidance in the shape of official forms or instructions on the Department of the Treasury website.
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.
Registered Agent Information: The name of your registered agent, their address, and contact information.
LLC Formation: The date you filed or will file your Articles of Organization with the Department of the Treasury.
Business Purpose: The type(s) of business your LLC will be doing in New Jersey.
Term: How long your LLC in New Jersey 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’re finished with your draft, run through it again to ensure that you didn’t miss anything important. After that, you must get the document approved by every LLC member, so distribute paper or electronic copies to them. Once it’s been approved, the agreement is official! You don’t need to submit it to The Department of the Treasury. Simply keep it with your other business files, as you’ll likely need to review and revise it later.
Making Changes to Your Operating Agreement
For better or worse, your business is going to change. As you begin doing business in New Jersey 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 registered agent resigns and, following New Jersey law, you appoint a registered 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 New Jersey 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.
It may be an optional document, but the state of New Jersey provides detailed laws about what an LLC’s operating agreement can and cannot do.
The New Jersey Statutes, Section 42:2C-11 outlines the parts of a business over which an agreement has authority. They are:
- Relations among members and between the LLC and its members
- The rights and duties of members and/or managers
- Business activities and conduct
- Decision-making processes and operating agreement amendments
Of course, an operating agreement doesn’t have unlimited control over your company. There are certain lines it cannot cross. It can’t authorize any activities considered illegal by state or federal law, and it can’t shelter your company from LLC maintenance requirements and their associated punishments. So, if you fail to file your Annual Reports or maintain a registered agent, it won’t stop the state from administratively dissolving your LLC. Be sure to look over the detailed list of restrictions in Section 42:2C-11 of the New Jersey Statutes.
Any business aspect not covered by your operating agreement will be governed by the state’s default laws, so make it as detailed as possible while staying within the state’s guidelines. Do this, and you’ll have an effective agreement that sets your business up for sustained success.