Forming a Ohio 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.
Time-Saving Hack: There are a handful of LLC formation websites that can form an LLC for you and also offer a customizable operating agreement. ZenBusiness and Northwest are two great examples of this.
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 Ohio?
Operating agreements are not mandatory to form an LLC in Ohio – creating one is completely optional. That said, maintaining an agreement can provide your business with stability and security, so we highly recommend it.
Not only will an operating agreement give you control over many aspects of your business, but it will also protect your personal assets and optimize your company for success. Without one, your LLC will be operating at a disadvantage.
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, statutory agent changes, dissolutions, and more, so there is no confusion.
- Avoids Ohio’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 Ohio courts.
Free Ohio LLC Operating Agreement
There’s a lot of great information on Ohio’s Secretary of State website that will help you form and maintain your LLC. Unfortunately, official forms or instructions for operating agreements are not a part of this information. If you’re looking for resources as you draft your document, you’ll need to look elsewhere.
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.
Statutory Agent Information: The name of your statutory 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 Ohio.
Term: How long your LLC in Ohio 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.
Once you’ve finished a draft of your operating agreement, it’s a good idea to review it and make sure you didn’t forget anything important. You’ll also need to pass it along to your LLC members so that they can approve it. There’s no need to file your final agreement with the Secretary of State. It’s an internal document, so just keep it in a safe place because 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 Ohio 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 statutory agent resigns and, following Ohio law, you appoint a statutory 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 Ohio 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.
Your operating agreement has a lot of influence over your LLC, but there are boundaries around what it can and cannot do, which are outlined in Section 1705.081 of the Ohio Revised Code.
According to state law, your operating agreement “governs relations among members and between members, any managers, and the limited liability company.” That’s a pretty broad umbrella, covering most of your LLC’s aspects. Then, throughout the LLC Act, the phrase “unless otherwise provided in the operating agreement” recurs frequently, in sections that address profit and loss allocation, member distribution, manager authority, the winding up of affairs, and much more, demonstrating just how wide-reaching your operating agreement is.
Still, it isn’t all-powerful, and the state designates several things the agreement cannot do. According to O.R.C. Section 1705-081, your operating agreement cannot:
- Vary the rights and duties defined by the Articles of Organization
- “Unreasonably restrict” access to your LLC’s books and records
- Eliminate the duty of loyalty and/or the duty of care (see section 1705.161 or section 1705.281)
- Eliminate the obligation of good faith and fair dealing (see section 1705.281)
- Restrict the rights of third parties
Further, your agreement can’t authorize activities that break state or federal laws, nor can it make your LLC exempt from business maintenance requirements or punishments. For example, if you fail to maintain a valid statutory agent, it won’t prevent the state from administratively dissolving your company.
As long as you’re careful to stay within the state’s boundaries and make your operating agreement as detailed as possible, your LLC will be set up for a long life of success.