A multi-member LLC operating agreement is between the members (owners) of a company that establishes its ownership and day-to-day operations. It is the only document that outlines the partnership between the owners. Therefore, it is obligatory to have an operating agreement written to limit disputes between the members.
Record of Ownership
An operating agreement is the only document that records the ownership between the members of an LLC. It is not filed with any government office and is meant to be stored by each member, officer, or individual mentioned in the agreement.
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Sample Templates (5)
eForms.com Version
NorthwestRegisteredAgent.com Version
Download: Adobe PDF
eSign.com Version
FreeForms.com Version
LLCOperatingAgreements.org Version
Main Purpose
The main purpose of an operating agreement is to establish the rules for running a company’s day-to-day activities. Any changes to the function of the company must be made through an amendment.
How do Members get paid?
The members of an LLC can get paid in 2 ways:
- Salary. If a member is an employee, consultant, or contractor, they can pay themselves a salary. This may include other benefits, such as health insurance, dental insurance, and retirement plans.
- Distribution of Profits. If there are excess profits at the end of the year, it is common to distribute them in accordance with the ownership interest of the members.
Does a Multi-Member LLC Need an EIN?
Yes, if you incorporate, it is required that the entity obtains an Employer Identification Number or EIN (IRS Rules). An EIN serves as an entity’s tax ID number for the lifetime of the business. It is required when setting up a bank account and filing taxes with the State and IRS.
If you are seeking to obtain an EIN, it can be applied in 2 ways:
- Apply Online (IRS website) – Available Monday thru Friday, 7 A.M. to 10 P.M. EST
- IRS Form SS-4 – Complete and send to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Tax Classification (3)
Partnership
The most common classification and does not require extra filing after incorporation. When filing taxes, the company will use IRS Form 1065, and any distributions made to members will be “pass-through” and be reflected on their individual tax returns.
- Pros. Non-citizens/residents can be members. No annual meeting is required.
- Cons. Ownership is not freely transferable and often required to sell to other members for an “appraised value.”
C-Corporation
Requires the filing of IRS Form 8832 at any time.
- Pros. Allowed to have 100 or more shareholders.
- Cons. Subject to “double tax” as the corporate income gets taxed plus the shareholders with dividends.
S-Corporation
Requires the filing of IRS Form 2553 within 75 days of the tax year (or from the incorporation date).
- Pros. Self-employment tax benefits. Only pass-through tax when dividends are paid.
- Cons. Cannot have non-citizens or residents be shareholders. Can be no more than 100 shareholders.
