Arkansas LLC Operating Agreement: Drafting Checklist

To register an LLC in Arkansas, you must first file certain documents with the Secretary of State. Namely, future business owners must file Form ll-01 and pay a small fee.[1] If you’re a foreign LLC, state law requires you to register with the FL-01 form instead.[1]

Once you’ve complied with the above Certificate of Organization and the Arkansas Secretary of State, you can form an operating agreement for your Arkansas LLC. This document isn’t compulsory according to state law. However, it can help you create a coherent business plan and strategy.

You should create an LLC operating agreement as early as possible in the business formation process. 

Key Takeaways

• Creating an operating agreement has many crucial benefits, such as protecting your personal assets and keeping your business from falling under default state laws.

• Arkansas operating agreements used to be required but aren’t compulsory anymore. However, it’s still highly encouraged to get one.

• Using operating agreement templates can help you streamline the process. Alternatively, you can hire a professional filing service to help you draw up an operating agreement.

What Is an LLC Operating Agreement?

An LLC operating agreement is a document that legally outlines a business plan for your company. It legally specifies the company’s regulations, provisions, and affairs between members. As a business owner, it also allows you to customize business processes to suit you and the members.

Once signed by the involved parties, it becomes a legally binding document. That’s why it’s crucial to clearly define, outline and agree with all the elements of the operating agreement before finalizing it.

State Requirements

Operating agreements used to be required if you wanted to have an Arkansas limited liability company. However, this is not the case anymore. While highly encouraged, it’s ultimately your choice to draft one. However, to start an LLC, you must ensure that it complies with the Certificate of Organization.[2]

Drafting your document will entail collecting and preparing some basic information, including:

• Your LLC name. Business owners must have a distinguishable company name approved by the secretary of state.

• The names of your LLC members. You should have the information of each member involved in creating your LLC.

• The business purpose of your LLC. Include all relevant details distinguishing your company from others in the same industry.

• Registered Agent. A registered agent officially receives legal documents on behalf of your LLC.

LLC Operating Agreement Benefits

An LLC operating agreement can bring many benefits to almost any business within Arkansas. Some of the main advantages of the document include:

• Provides legal protection. An operating agreement differentiates you from your LLC, protecting you from personal liability. Whatever losses your LLC suffers, you will not be held personally accountable.

• Lets you customize your LLC policies legally. Forming a business entity without an operating agreement will fall under state rules by default. Such a strategy can be highly inefficient as members must check state laws when making decisions. An operating agreement lets you legally define your own rules for your business.

• Gives you a professional business strategy. You can specify any agreements between members within the operating agreement. Having administrative processes in writing helps avoid confusion when dealing with daily tasks within your business.

Business owners should have access to professional legal advice when creating this document to ensure they include all key points.

Who Needs an Operating Agreement?

Once LLC formation is complete, you can draft the operating agreement. However, you might be wondering which types of businesses typically need one. Some of these businesses include:

• Any LLC in Arkansas. Operating agreements benefit all LLC types, including small businesses, larger companies, and single-member LLCs.

• LLCs in New York, California, and Missouri. LLCs in these three states must create an operating agreement according to state law.

However, some businesses don’t necessarily need operating agreements. These include:

• Sole proprietorships. Since sole proprietorships only consist of one person, the formation typically won’t need an operating agreement. This is because the company and the person are considered a single entity. However, even certain sole proprietorships will create agreements for an effective business strategy.

• Incorporations. These are often more complex to organize than LLCs. They use bylaws instead of an operating agreement.

Drafting Your Arkansas LLC Operating Agreement

Now that you know what an operating agreement can do for your LLC, it’s time to consider the elements you’ll need to draft one. It’s best to get legal advice for the document. A professional will ensure you aren’t missing any key points.

Here are the things you’ll need to consider while preparing to draft one:

• Make sure your business complies with the Arkansas Certificate of Organization. Once you pay your filing fee and register with the secretary of state, you’ll have a registered LLC.

• Use an LLC operating agreement template. A template is an easy way to organize the necessary information for the agreement. Some business owners might start without a template. However, it takes much more work and can be daunting.

• Gather basic LLC information. Make sure to collect all the necessary information regarding your LLC. Some points include details like place of business, business name, and your decided management structure.

Step 1: Provide Business Information

When starting an operating agreement, collecting the relevant business information is the most fundamental stage of the process.

For basic information, you’ll need:

• Your Employer Identification Number (EIN)

• Place of business

• Principal Office

• The company name

• Registered office

If you’ve been filing with the Secretary of State, you’ll have this information in some of the documents. Prepare them when you start the filing process for your LLC to ensure you have everything ready.

Step 2: List LLC Members

Members are a central part of an LLC. You should ensure they’re all included in your operating agreement. Once you’ve included each member, you must assign them responsibilities. Listing members is an opportunity to organize your LLC based on membership roles. You’ll need to discuss roles with all the members before clearly specifying information so everyone agrees.

Member responsibilities will heavily tie into other administrative operations such as member contributions, voting rights, membership interests, and ownership percentages. The membership segment will also define your entity as a multi-member or a single-member LLC.

This part of the operating agreement is crucial because it legally protects the members with limited liability. Suppose the LLC accumulates debt while conducting business. This document will protect your members’ assets since the company is a distinct entity.

Step 3: Decide Member-managed vs. Manager-managed

Management is an enormous factor for any business. With an operating agreement, you’ll be able to create a management structure that best suits the needs of all your members. There are two main membership structures:

• A member-managed LLC. Member management means that all members are active in the decision-making process for day-to-day operations. Each member will have specific voting rights and member responsibilities. Likewise, each member acts as an official agent for the LLC.

• A manager-managed LLC. You’ll notice that this structure is frequent within larger companies. The members might be present for only some decision-making, so they appoint a manager to make the decisions instead.

Single-member LLCs with only the business owner count as member-managed by default. However, this doesn’t keep you from appointing managers and making the switch.

Step 4: Lay Out Administrative Operations

Administrative operations are frequently the most technical parts of drafting an operating agreement. You’ll want to discuss every aspect with your members beforehand. Once you reach a verbal agreement, you can prepare it with the proper legal advice.

Your administrative operations segment covers the daily tasks and business affairs. Drafting administrative operations will standardize your business plan and give you a strategy for dealing with situations every LLC and startup will encounter.

Like every segment of the operating agreement, this section needs to be clearly defined. Business owners should also tailor it to the specific needs of every member to reach a smooth agreement. Some of the cases include:

• Voting rights. Each member should be designated voting rights to make decisions within the business. You might want to share these voting rights equally or base them upon the financial contributions of each member. The exact method is yours to decide.

• Allocations. As your business progresses, you’ll have to deal with losses, debt, profit, and other financial outcomes. It would help if you defined the distribution of these outcomes fairly amongst the members.

• Business bank account. Settling on an active bank account will help simplify financial planning. It’s also required for tax purposes, such as filing annual reports with the IRS.

• Capital contributions. Members may give financial contributions as your LLC gets started. To track and plan accordingly, you should specify these contributions within the operating agreement. Capital contributions can also imply changes in other administrative operations, such as voting rights.

Step 5: Add and Remove LLC Members

Business owners will need a straightforward method for adding or removing members from the LLC. Changes in membership will call for an amendment at the very least, while some LLCs will create a new operating agreement from scratch.

Losing or adding members may change many if not all, administrative operations within the legal document.

Let’s say you buy out another member. With them gone, you’ll need to clearly define the changes in contributions, voting rights, and membership interests. 

Create Your Operating Agreement Through a Filing Service

Although helpful, an operating agreement can still be inconvenient and time-consuming. Business owners must collect information and reach agreements about complicated business tasks.

If you’re looking for the next step after forming your LLC, our LLC operating agreement service ensures you have a compliant document for conducting business in the state of Arkansas.

Start your business off on the right foot. File for your LLC through Swyft Filings today and include our LLC operating agreement add-on in your cart to ensure all necessary documents are completed simultaneously.

Swyft Filings takes the stress out of starting a business. We’ll handle all the paperwork so you can focus on your business operations effectively.

FAQs

Is an LLC Operating Agreement required in Arkansas?

No, Arkansas does not require an operating agreement for an LLC. The state changed this requirement, leading to the Articles of Organization being renamed the Certificate of Organization.

How does an LLC Operating Agreement help protect my assets?

An operating agreement protects you from personal liability. That means you won’t be held personally responsible if your LLC accumulates debt. You and the LLC are considered two different entities.

Who needs access to this document once it’s drafted?

An operating agreement is essentially a private document. Only your members, you, and potentially a registered agent need access. There’s no need to file it with the Secretary of State.

How do I edit information on this document if membership changes?

If membership changes, you must amend the operating agreement to reflect these changes. It may affect administrative operations as well. Once you make the proper amendments, ensure that all the new members sign the document too.

What other legal documents do I need to draft for my Arkansas LLC?

You’ll only need the LL-01 form or the FL-01, depending on whether you’re a domestic LLC or a foreign one. You’ll also need your Employer Identification Number from the IRS when registering your business and drafting an operating agreement.[2]

Bibliography

1. Arkansas Secretary of State. “APPLICATION FOR CERTIFICATE OF REGISTRATION OF FOREIGN LIMITED LIABILITY COMPANY.” Accessed June 22, 2023.

2. IRS. “Topic No. 755, Employer Identification Number (EIN) – How to Apply.” Accessed June 22, 2023.