A Connecticut LLC Operating Agreement, to break it down for you, is essentially your tailored construction plan for your LLC, offering a discernible outline for your business operations. Imagine we're at our usual coffee spot and I describe it as your distinctive road map that explicates the regulations for managing your business, including factors like ownership division, policy arrangement procedures, and planning for leadership transitions down the line.
Steered by Connecticut's LLC legal frameworks, you will highlight key factors in this agreement such as the obligations of members, the operational flow for decision-making, and tactics for harmonious dispute resolution - shaping a clear direction to nip potential disagreements among partners or members in the bud before they become more serious issues.
No, it's not legally required in Connecticut under § 34-243d. Single-member LLCs need an operating agreement to preserve their corporate veil and to prove ownership. And multi-member LLCs need one to help provide operating guidance, determine voting rights and contributions.
Read on to learn more about Connecticut operating agreements, including:
Here are some key components that are typically included in a Connecticut LLC operating agreement:
Let's break down the usual sections and provide some explanation for each to guide you.
By the time you've registered your LLC formation documents with the state, your LLC will already have a name. The purpose of your LLC also needs to be covered. Here, a broad statement goes a long way, allowing room for future business growth without the need to re-register.
OPERATING AGREEMENT of [COMPANY NAME]
This operating agreement is adopted as of [Date] (the “Effective Date”), by [Member’s Name] , an individual and the sole member (the “Member”) of [Company Name] (the “Company”).
The Member hereby adopts this agreement as the operating agreement of the Company, which agreement sets forth the entire understanding of the Member regarding its subject matter and supersedes all prior understandings and agreements regarding its subject matter.
The purpose of the Company is [ Company Purpose] , and the conduct of other activities as may be necessary or appropriate to promote the stated purposes, and to engage in any other lawful business or activity for which a limited liability company may be organized under the Act.
This pivotal section determines whether your LLC will be managed directly by its members or by a designated manager. It further lays out each member's rights and responsibilities, including capital contributions, voting rights, and management structure. This information remains vital even if you're the only member of your LLC.
The business and affairs of the Company will be managed by the Member. The vote, action, decision, or consent of the Member will constitute a valid decision of the Member and the Company. The Member may appoint one or more officers (including the Member, if the Member is an individual) who will have such powers and authority to act on behalf of the Company granted to them by the Member.
The business and affairs of the Company will be managed by the manager of the Company and any successor thereto appointed by the Member, which manager may also be referred to as the Company’s president (the “Manager”). The initial Manager will be [Manager Name] , who will serve until the Manager’s death, removal by the Member (for any reason or no reason), or resignation. The Manager will have the right and authority to manage the affairs of the Company and make decisions and take action with respect thereto without further approval or consent of any kind by the Member. Except as otherwise required by this agreement and in lieu of any limitations set forth in [State Name] ’s laws for limited liability companies (the “Act”), the Manager will be solely responsible for and is hereby authorized to manage and operate the business of the Company. Except to the extent that the authority of the Manager is expressly limited by the Member, the vote, action, decision, or consent of the Manager will constitute a valid decision of the Manager and the Company.
The registered agent is designated to receive and handle important paperwork on behalf of your LLC. Even though it sometimes appears in operating agreements, it's not mandatory since it's already defined in your state formation documents.
The Company’s registered agent in State is: Registered Agent Name , Address . The members may designate other registered agents or offices at any time in this state or, if necessary, in other states.
This refers to your LLC's operational lifespan as dictated by your formation documents. Although most business owners choose to have their LLCs continue in perpetuity, it's your choice to specify an exact duration or date of dissolution.
The duration of the Company will be perpetual.
Here we dive into the first investments made to kickstart your LLC. For single-member LLCs, these contributions are typically made by the owner, and you have the flexibility to determine what this injection looks like.
Keeping a clear record of these contributions is critical—it presents a transparent financial snapshot of your LLC and provides essential tax-related input.
The Member’s capital contribution(s) to the capital of the Company for the Member’s membership interest in the Company will be reflected on the books and records of the Company.
The members have made or shall make the contributions of cash, property or services to the LLC as set forth on Exhibit A attached
An indemnification provision aims to protect your LLC's members from certain legal costs potentially stemming from their duties within the company. Essentially, it stipulates that if a member faces legal action related to their duties in the LLC, the LLC will cover any legal costs or damages.
Your agreement should specify under what circumstances the LLC will offer this protection. But bear in mind, indemnification usually doesn't cover deliberate misconduct or gross negligence.
The Member, the Manager, the officers, and the organizer of the Company and their respective affiliates, stockholders, members, managers, directors, officers, partners, employees, agents, trustees, and representatives (individually, an “Indemnitee”) will be indemnified by the Company against any and all losses, claims, damages, liabilities, expenses (including legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits, or proceedings, civil, criminal, administrative, or investigative, in which the Indemnitee may be involved, or threatened to be involved, as a party or otherwise by reason of the Indemnitee’s status as any of the foregoing, which relates to or arises out of the Company or its assets, business, or affairs, if in each of the foregoing cases (A) the Indemnitee acted in good faith and in a manner the Indemnitee believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful, and (B) the Indemnitee’s conduct did not constitute gross negligence or willful or wanton misconduct. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, will not, of itself, create a presumption that the Indemnitee acted in a manner contrary to that specified in clause (A) or (B) above. Any indemnification under this section 5 will be made only out of the assets of the Company, and the Member will not have any personal liability on account thereof.
When it comes to taxes, your Connecticut LLC can choose from three main tax designations: a sole proprietorship, partnership, or corporation. Factors like your member count and your election status with the IRS can affect your LLC's tax standing.
A handy tip is to include a clause regarding tax status in your operating agreement. Why? This clause can outline your chosen tax status and describe how to change it, dealing with tax returns, and any allocations (if applicable). This provides a path to handle any tax-related matters and secure your LLC's financial operations, covering areas like profits, losses, distributions, and taxes.
The Company will be disregarded for federal and state income tax purposes. The admission of one or more additional members, however, will cause the Company to be recognized for tax purposes, and to be taxed, as a partnership.
The Member acknowledges that the Company has elected to be taxed as a corporation for federal tax purposes pursuant to the regulations currently in effect under Section 7701 of the Code, and to be taxed as an electing small business corporation under the provisions of Subchapter S of the Code. Notwithstanding such tax treatment, the Member acknowledges and agrees that the Company will be a limited liability company, for state law purposes, under the provisions of the Act, the Articles of Organization, and this operating agreement.
The Member acknowledges that the Company has filed or will timely file a Form 2553 (Election by a Small Business Corporation) with the Internal Revenue Service and that the election made pursuant to the filing is or will be in force and effect covering all periods since the date of this operating agreement. Except as otherwise provided in this operating agreement, during the term of this operating agreement and the continuation of the Company’s “S” corporation election under Section 1362 of the Internal Revenue Code, no Member shall take any action which would cause the revocation or termination of the Company’s “S” election (under Section 1362(a) of the Internal Revenue Code) and any attempt to take such an action will be null and void and without effect. Without limiting the foregoing, and notwithstanding any provision hereof to the contrary, any transfer or attempt to transfer any membership interest to any of the following will be null, void, and without effect:
(a) a person whose ownership thereof would cause the Company to have a number of Members and assignees of membership interests (shareholders of an “S” corporation) greater than the number permitted by Section 1361(b)(1)(A) of the Internal Revenue Code;
(b) an individual who is not a United States citizen or resident;
(c) a trust (or the trustee thereof) which fails to satisfy the requirements of Section 1361(c)(2)(A) or 1361(d) of the Internal Revenue Code;
(d) a corporation; and
(e)any other entity whose ownership would cause the termination or revocation of the Company’s tax status as an “S” corporation.
This section of your operating agreement outlines how profits and losses will be shared. For single-member LLCs, this is quite a straightforward process. However, for multi-member LLCs, it's important to establish a clear procedure for how and when earnings will be distributed to avoid potential disputes.
As the sole member of the LLC, the Member is entitled to all profits of the LLC and is responsible for all its losses. Profits and losses shall be determined annually and will be allocated to the Member's capital account. Distributions of cash or other assets will be made at such times and in such amounts as deemed appropriate by the Member.
Changes are an inevitable part of business, so you'll want an amendment procedure in your operating agreement. While things are pretty straightforward for single-member LLCs, multi-member LLCs should include details on voting percentages and requirements needed to modify the agreement.
This agreement and the articles of organization of the Company may not be altered, modified, or changed, and no provision of this agreement may be waived, except by an amendment or waiver, as applicable, approved by the Member.
Normally, LLCs don’t need to stick to corporate formalities (those formalities are more a corporation’s thing). However, disregarding such formalities could pose a risk to your corporate veil. Therefore, including a waiver of all formalities in your agreement could be beneficial.
The failure of the Company or the Member to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this operating agreement or the laws in the state in which the Company is which govern limited liability companies will not be grounds for imposing personal liability on the Member for liabilities of the Company.
The dissolution clause covers the protocol for winding down your LLC and indicates who takes control in unforeseen circumstances. Essentially, think of it as your LLC's exit plan.
Upon the occurrence of any event which terminates the continued membership of the Member in the Company, the Company will not be dissolved, and the business of the Company will continue. The Member hereby specifically consents to such continuation of the business of the Company upon any such event. The Member’s legal representative, assignee, or successor will automatically become an assignee of the Member’s interest and will automatically become a substitute Member in place of the withdrawn Member.
Finally, the effective date is when your operating agreement officially comes into effect or the 'birthday' of your agreement, if you will.
There's no need! Unlike your Articles of Organization, your operating agreement doesn't have to be filed. It’s an internal document. After signing it, just keep a copy for your records and make sure it’s easily accessible when necessary.
Adding another member as your LLC grows is entirely feasible. Should this situation arise, you'll need to adjust the relevant documentation according to the terms agreed upon with the new member. Often, a new agreement is advisable as multi-member LLC agreements tend to be substantially different from single-member LLC agreements.
