Forming a Virginia 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 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 Virginia?
Not exactly. The Virginia State Corporation Commission doesn’t require your LLC to adopt an operating agreement before commencing business activities. But that doesn’t mean you’ll be fine without one. An operating agreement helps your business run smoothly, protects it in potential disputes, and legitimizes it in the eyes of courts, banks, other businesses, etc.
With an operating agreement, you can establish the procedures that benefit your LLC the most and separate your personal and business assets. So, you should think carefully before starting your LLC without 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 Virginia’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 Virginia courts.
Free Virginia LLC Operating Agreement
You’ve decided to take on the operating agreement. Now what? Creating such a complex and detailed legal document can be intimidating, and because the State Corporation Commission doesn’t provide any official forms or instructions, you might not know where to begin.
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 State Corporation Commission.
Business Purpose: The type(s) of business your LLC will be doing in Virginia.
Term: How long your LLC in Virginia 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.
All finished? Give yourself a well-earned break, then run the agreement by each of your LLC’s members. They all need to give their approval before the document can take effect. You won’t need to submit it to the State Corporations Commission, as it’s strictly an internal filing. Instead, just file it safely away with your other business documents.
Making Changes to Your Operating Agreement
For better or worse, your business is going to change. As you begin doing business in Virginia 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 Commonwealth, 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 Virginia 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 Virginia 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.
If you’ve made it this far, you’ve probably realized just how much authority the operating agreement has over your LLC, with power to govern almost all of its activities, conduct, members, and more.
The Code of Virginia Section 13.1-1023 states that your agreement has the authority to “regulate or establish the affairs of the limited liability company, the conduct of its business and the relations of its members.” That’s a wide range of power, and because the law is so broad, you’ll need to make sure your agreement is as detailed as possible to include every part of your business operations.
While the agreement is wide-ranging, it isn’t all-powerful. Section 13.1-1023 also says that the document’s provisions cannot be “inconsistent with the laws of the Commonwealth or the Articles of Organization.” This means that it cannot authorize any actions that would break Commonwealth or federal law, nor can it make your LLC exempt from Virginia’s business maintenance requirements, like registered agents and annual registration fees. If you fail to keep up with LLC maintenance requirements, your agreement won’t prevent the Commonwealth from imposing any applicable penalties.
Follow this guide and respect the Commonwealth’s guidelines and you’ll have an effective operating agreement in place before you know it.