Louisiana LLC Operating Agreement: Drafting Checklist

You need certain documents to register your limited liability company and stay compliant with state law. Articles of organization might be the most essential paper for your Louisiana business, but what about an operating agreement?

Do you need a Louisiana LLC operating agreement, or do you risk violating state laws without one? Also, what should your agreement include if you decide to draft it? Keep reading for an in-depth guide.

Key Takeaways

• No state or federal law requires you to enter into a Louisiana LLC operating agreement, so you and your members can decide whether you want to create one.

• Drafting an operating agreement helps protect you from personal liability by separating your personal assets from your LLC.

• A small business operating agreement should provide basic company information, details about the members, administrative duties, and procedures for adding and removing members.

What Is an LLC Operating Agreement?

An operating agreement is a legal document that outlines how you’ll conduct your business.[1] It provides basic information about your limited liability company, such as the name, employer identification number, and the registered agent who accepts your service of process. This makes it similar to your articles of organization.

More importantly, the paper helps verify your LLC formation. It proves you’ve established an LLC and not a different type of enterprise, which can play a major role in protecting your assets. Additionally, the document lists your team members' key responsibilities, ensuring everyone’s on the same page from the get-go.

State Requirements

There’s some red tape associated with starting a business in Louisiana. For example, the Louisiana Secretary of State requires you to appoint and maintain a registered agent to preserve your good standing.[2]

The good news is that your hands aren’t tied regarding an operating agreement. No state law requires you to create one.

Additionally, there are no timing requirements if you decide to draft this document. Whether you do so when filing your LLC or once your company is up and running is entirely up to you.

LLC Operating Agreement Benefits

The Louisiana Secretary of State doesn’t require business owners to enter into an operating agreement, but this doesn’t mean you shouldn’t draft one. Otherwise, you’ll miss out on this document's tremendous benefits for your LLC.

Helps Guarantee Your Personal Liability Protection

One of the main reasons to start an LLC is favorable tax treatment. Namely, the state considers you a pass-through business entity for income tax purposes, allowing you to avoid double taxation. This means you don’t have to pay federal income taxes, which puts you in a better position than corporations.[3]

Another reason is personal liability protection. Forming this type of enterprise separates your personal assets from company property. As a result, your personal funds aren’t at risk if your firm loses a lawsuit and is forced to pay a settlement from its business bank account.

To help ensure your private assets are safe, many attorneys will give you the legal advice to set up an operating agreement. It reaffirms that you truly are an LLC member, proving to courts that your personal and enterprise finances are separate.

Supports Your Business Plan

A solid business plan is the cornerstone of your LLC. It includes several critical elements, such as market analysis, organization, management, products or services, and finances. All of which provide a roadmap for your company to thrive.[4]

Drafting an operating agreement is the best way to underpin your business plan and help streamline your management. The document provides your members' or managers' key roles and responsibilities, depending on your management structure. It divides work evenly so that everyone contributes to the success of your enterprise.

Furthermore, it prevents some business owners from leeching off the work of others. It becomes legally binding once they sign the paper, requiring them to pull their weight.

Avoids Default Rules

You want to run your company in the best way possible so that you can reap the benefits of your hard work. Nobody else should interfere in your operations, but that’s exactly what happens if you don’t have an operating agreement.

Without this document, you’re not governed by your own rules. Instead, default Louisiana state rules come into play and dictate how you do your business. These guidelines have little to do with your vision, making them a major hurdle on your way to success.

Enter into an operating agreement to prevent default state rules from applying to your enterprise and meddling with your operations.

Who Needs an Operating Agreement?

Every business entity in Louisiana should have an operating agreement. Here are a few situations where you should enter into an operating agreement as an owner of a Louisiana limited liability company:

• You wish to stop state default rules from hurting your business formation.

• You want to keep your business entity in line with your business plan.

• You want to switch to a different structure and need solid groundwork before transitioning.

• You want to apply for S corp tax status and ensure each member understands their role under the new tax scheme.

Drafting Your Louisiana LLC Operating Agreement

When filing for your LLC, you must submit your articles of organization to the Louisiana Secretary of State, pay a $100 filing fee, and wait a few business days for the government to process the request.[5] 

The process of drafting an operating agreement for your legal entity is similar. You can find an LLC operating agreement template on many online sources and provide the requested information.

Another option is to draft a written operating agreement from scratch before or after registering your enterprise. Whatever you choose, take the following steps when creating this internal document.

Step 1: Provide Business Information

The first section emulates your articles of organization. It has a similar purpose, as it introduces your company by providing basic information about the enterprise:

• Business name of your LLC

• Place of business of your LLC formation 

• Registered agent and registered office

• Employer identification number (EIN) or Social Security Number[6]

Step 2: List LLC Members

Members of an LLC make up your enterprise, which is why you need to add them to your operating agreement. It verifies that your and other members’ personal assets are separate from company property.

Cover the following points when listing your owners, whether you’re a single-member LLC or multi-member LLC:

• Names and addresses of all business owners

• Membership interest (ownership interest) of each startup member

• Individual member contributions

Step 3: Decide Member-Managed vs Manager-Managed

When forming your LLC, you must decide how to manage your enterprise. The two most common options are a manager-managed and member-managed management structure. Your operating agreement should reflect your decision.

If you’re having a hard time making your pick, the following advantages and disadvantages of each solution should steer you in one direction:

Pros and Cons of Member Management

Pros and Cons of Manager Management

Step 4: Layout Administrative Operations

Your internal document should also cover the administrative operations of each LLC member. In other words, the operating agreement should outline the duties of all your business owners, including:

• Who’s in charge of profit and loss allocation and distributions based on capital contributions and voting rights

• Who manages the business bank account for your startup

• Who determines if your company is following your business plan and if you need to customize the plan

• Who performs day-to-day administrative duties, such as mail operations and customer service

• Who files tax-related forms with the IRS

Step 5: Add and Remove Members

Chances are your company won’t have the same management structure five or ten years from now. You may add and remove members during this time, but you can’t do so randomly. 

Your internal document should tell you how to go about membership changes:

• How new members affect ownership percentages

• How parting members influence the membership interest of the remaining members

• How you tackle buyout and indemnification scenarios

• How much capital should new members contribute to your company

Create Your Operating Agreement Through a Filing Service

Small business owners who want to start an LLC have a lot on their plate already. From developing marketing strategies to staying compliant with state law, they have to juggle many duties daily. Drafting a Louisiana LLC operating agreement on their own is often the last straw for many business owners, making many give up. 

Swyft Filings is here to take the operating agreement drafting out of your hands. We offer a comprehensive service to help you focus on other aspects of your business. Simply tell us a few key facts about your firm, and leave the rest to us. You’ll soon have a detailed internal document that paves the way for a thriving enterprise.

FAQs

Is an LLC operating agreement required in Louisiana?

No. You’re not legally required to obtain an operating agreement in Louisiana. Even so, you shouldn’t start your company without this internal document. It helps guarantee personal liability protection, meaning your private funds can’t be repossessed in the event of court settlements.

How does an LLC operating agreement help protect my assets?

An LLC operating agreement plays a pivotal role in protecting your personal property by proving you’re the owner of your LLC. By providing your information as a member of your organization, you make it clear your personal funds are separate from enterprise property. As a result, you don’t have to worry about personal loss should someone sue your entity.

Who needs access to an operating agreement once it’s drafted?

Every signatory party should have access to your Louisiana operating agreement once you draft it. This ensures full transparency and helps prevent conflict down the line. Furthermore, you need to show the document to each member before they sign it so they can green-light the agreement.

How do I edit information on an operating agreement if membership changes?

When recruiting or removing members, you can’t edit information in your operating agreement randomly. Even the tiniest membership change requires you to draft a new agreement and have it signed by every business owner. Only then does the amendment become valid, and the new agreement becomes legally binding.

What other legal documents do I need drafted for my Louisiana LLC?

In addition to your operating agreement, don’t forget to draft your articles of organization when starting your Louisiana LLC. Otherwise, the Secretary of State won’t let you register your enterprise. 

Bibliography

1. SEC. “Limited Liability Company Operating Agreement of EPL of Louisiana L.L.C.” Accessed June 28, 2023.

2. Louisiana Secretary of State. “Order Documents & Certificates.” Accessed June 28, 2023.

3. Cornell Law School. “Pass-through taxation.” Accessed June 28, 2023.

4. U.S. SBA. “Write your business plan.” Accessed June 28, 2023.

5. Louisiana Secretary of State. “Get Forms & Fee Schedule.” Accessed June 29, 2023.

6. IRS. “Apply for an Employer Identification Number (EIN) Online.” Accessed June 29, 2023.