Operating agreements are an important part of an LLC. They help organize the structure of the LLC and determine ownership, among other things. The same is true for a series LLC operating agreement. Here’s what you need to know.
What is an Operating Agreement?
The Operating Agreement is a “partnership agreement” signed by the Members of an LLC that establishes the rules and regulations of an LLCs operations. It is similar to the bylaws of a corporation, but also includes provisions found in Shareholder Agreements of corporations. The LLC Operating Agreement is required under Delaware code. Unlike the Certificate of Formation, it is a private document, not on record with the state of formation.
The Operating Agreement may be changed from time to time. Most often changes take the form of an “Amended and Restated LLC Operating Agreement”. The LLC Operating Agreement often has provisions which prevent members from assigning their membership units to non-members without the consent of the other members. It also sometimes has provisions that force a member to sell out at book value if he decides not to work for the LLC. In Delaware, the LLC Operating Agreement even supersedes the Delaware LLC Act.
The Operating Agreement of a Series LLC will have many of the same provisions of a traditional LLC Agreement, however it will have some key differences. The Series LLC Agreement will typically have separate Exhibits which will contain the agreement for each series “cell”.
Basic Sample Delaware Series LLC Operating Agreement
The Delaware LLC Act provides for maximum flexibility when drafting an LLC Operating Agreement. This is known as freedom of contract with regard to the LLC Operating Agreement. To view a sample Delaware Series LLC Operating Agreement, please visit this link. The Delaware LLC Act and Delaware courts generally follow a “contractarian” view of letting members make their own agreements. Then Delaware the courts usually enforce these operating agreements strictly as written. The Delaware courts are reluctant to use equity to rescue members from deals they negotiated from the outset where the problem was anticipated and the outcome was prescribed by the operating agreement.
The IncNow Series LLC Master LLC Agreement is 37 pages. This main agreement sets forth the organizational structure of the company, how to add and terminate protected series, and importantly, it sets forth the members associated with the company. This main agreement is followed by Exhibit A, which lists the protected series and Exhibit B.1, B.2, B.3, etc. where each protected series has a short operating agreement, usually two pages in length, designating members and managers associated with each protected series. Then lastly is Exhibit C, a form used to terminate a protected series.
IncNow was one of the first Registered Agents that offered the Series LLC. Our President, John Williams, Esq., lectures and serves as an expert witness on the topic of the Series LLC.
Delaware Series LLC Amendments
In a Series LLC, like a traditional LLC, any changes to the main Operating Agreement are accomplished through amendments to the main Operating Agreement. Those Operating Agreement amendments do not need to be filed with the Delaware Division of Corporations.
The Delaware Certificate of Formation is not required to be amended when protected series are added or members change. Should a Certificate of Formation designate the protected series by name (optional), then only in that instance should the Certificate of Formation be amended when series are added and removed through a Certificate of Amendment.
Questions about the Series LLC?
We expect you may have questions about the Protected Series LLC. John L. Williams, Esq. is available for consultations at the rate of $500 per hour.