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Swyft Filings is committed to providing accurate, reliable information to help you make informed decisions for your business. That's why our content is written and edited by professional editors, writers, and subject matter experts. Learn more about how Swyft Filings works, our editorial team and standards, what our customers think of us, and more on our trust page.
Prospective business owners in the state of Massachusetts have to file several documents when opening their limited liability company.[1] One that's best to draft as early in the LLC formation process as possible is an operating agreement.
Massachusetts law doesn't require LLCs to have an operating agreement, but this legal document benefits both big and small businesses. The following sections will explain why an operating agreement is a must-have for your Massachusetts LLC and how to draft it for your company.
Key Takeaways
Massachusetts Secretary of State doesn't require LLCs operating within the state to have an operating agreement.
An operating agreement outlines how the LLC operates and overrides ambiguous state laws, which can benefit small businesses regardless of structure and type.
Drafting a Massachusetts LLC operating agreement can be complex for first-time business owners, so investing in an affordable filing service like Swyft Filings is a good idea.
Don’t be forced to operate under default state guidelines that don’t fit your business. Shield your assets and set your own rules for your LLC with a proper Operating Agreement.
What Is an LLC Operating Agreement?
An LLC operating agreement is a legal document that establishes the ownership structure of your limited liability company.
Unlike your Articles of Organization or LLC Certificate of Organization, an operating agreement lists all members alongside their membership interest in the company. In addition to their basic information, it spells out their responsibilities and capital contributions. This information becomes vital for the future should the membership structure change.
An operating agreement also includes a detailed management plan, voting rights, allocation of profits and losses, buyout and buy-sell rules, and details about the liquidation and dissolution of the LLC if it ever comes to it.
State Requirements
As mentioned, the Secretary of the Commonwealth of Massachusetts doesn't require LLCs to have an operating agreement. According to Chapter 156C of the Massachusetts Limited Liability Company Act, Massachusetts law only asks that every Massachusetts LLC files a Certificate of Organization, pays a filing fee, and files annual reports each fiscal year.[2]
If an operating agreement exists, it doesn't have to be filed with state offices. The document can outline rules that override state laws on LLCs. However, it also can't be worded in a way that breaches common public policies.
LLC Operating Agreement Benefits
Drafting an operating agreement for your LLC in Massachusetts benefits you and other company members. Here are just a few reasons why:
Protects the limited liability status of your Massachusetts business, meaning any debt that befalls your company won't affect your personal assets with an operating agreement in place
Proves the ownership of your Massachusetts business, making you seem more trustworthy and professional in financial institutions' eyes and helping you open a business bank account
Allows you to tailor your rules to your liking instead of relying on state default rules for LLCs that are often too general and don't fit the needs of every LLC
Who Needs an Operating Agreement?
Despite not being required by the Commonwealth of Massachusetts, state law allows all business owners to draft an operating agreement during business formation regardless of the business entity they plan on running. Even LLCs with S corp status can benefit from this document, which requires only a bit of your time to draft.
The size and place of business are also irrelevant, as big and small businesses can create an operating agreement to keep their business operations under control.
Moreover, your Massachusetts limited liability company risks falling under overly general state default laws without a valid operating agreement.
Drafting Your Massachusetts LLC Operating Agreement
Now that you know what an operating agreement contains and who needs it, you must learn how to create it. You can find plenty of LLC operating agreement templates that might make drafting this legal document easier. However, the needs of each LLC differ, and you'll likely need one made specifically for you.
You can build your operating agreement from the ground up, but you must be careful that it complies with the rules prescribed by the Massachusetts Secretary of the Commonwealth.
For your convenience, we'll explain the entire drafting procedure of your written operating agreement in the following sections.
Step 1: Provide Business Information
The basic information in your operating agreement must match your Articles of Organization or Certificate of Organization. If you've already created the Certificate, you can copy the details to this part of the drafting process quicker.
In general, an operating agreement should include the following:
LLC name that's unique and distinguishable according to the rules stated by the state of Massachusetts[3]
Primary place of business
Registered agent or resident agent details
LLC's industry branch information
You can get to work as soon as you decide on the company's name and add other information as you move through the rest of your LLC formation process.
Step 2: List LLC Members
Your Massachusetts startup can be a multi- or single-member LLC. Whatever the case, every Massachusetts LLC must list all the business owners and members of an LLC who have ownership stakes and act on behalf of the company.
Apart from their names, you must also clearly outline member contributions, responsibilities, voting rights, and membership interest.
A transparent ownership structure that all members can refer to prevents misunderstandings and disputes. It also protects your personal assets from company debt and owners' personal liability.
Even as the only member in your company, a single-member LLC operating agreement works in your favor because you can dictate how your company works with no state interference.
Step 3: Decide Member-Managed vs Manager-Managed
The management of the company can be realized in two ways: member-managed and manager-managed.
Single-member LLCs and small businesses with few members are usually member-managed. In this type, each member has a say in the business's day-to-day operations, depending on their share in the company. Since all members have voting rights, all decisions are elected unanimously.
The manager-managed LLC management structure makes your LLC function more like a corporation. Only designated LLC owners can make decisions on behalf of the company, while a manager, which can be a third party, oversees operations. Other members can have a more passive role.
Step 4: Layout Administrative Operations
The most vital part of your Massachusetts LLC operating agreement draft is its administrative operations. They refer to various day-to-day actions that keep your company running, so describing them in detail and appointing individuals for each of them ensures the smooth functioning of your business.
Operating agreement administrative operations include:
Tax clarifications
Annual reports
Aspects connected to your business bank account
Members' capital contributions
Allocation of profits and losses
Voting rights
All these operations can be assigned to an employee with knowledge of the subject or an outside expert. Regardless, ensure the details are customized to fit your company's needs.
Step 5: Add and Remove LLC Members
While forming your operating agreement, you must dedicate a chapter explaining what adding new members or removing old ones entails for your company. As your single-member LLC grows, you might need to recruit more members for your LLC. Retirement and death are also possible causes of member removal.
The start or cancellation of membership changes member contributions, ownership percentages, membership interests, voting rights, and other aspects concerning an LLC's members. That's why membership changes require a brand-new operating agreement drafting, so ensure you know exactly what to do.
In addition, if there was a violation of the agreement that resulted in the remaining members' financial losses, you need an indemnification clause that clearly defines the procedure. If you don't have a corresponding procedure, members who aren't willing to be removed from the company have the right to a buyout agreement.
Create Your Operating Agreement Through a Filing Service
Drafting your Massachusetts LLC operating agreement probably sounds like a breeze now that you know all the necessary details. However, as a future business owner, you need to deal with other aspects of your small business launching. Leave the drafting of the operating agreement to professionals at Swyft Filings and devote your precious time to other business formation tasks.
Swyft Filings will provide unparalleled operating agreement services that come at an affordable price. Whether you're just starting your LLC formation or only need to draft your operating agreement, the experts at Swyft Filings can jump in and assist you at any time.
Just tell us a bit about your future Massachusetts LLC, and we'll create a template compliant with Massachusetts law and send it back to you for review. Order your Massachusetts LLC operating agreement today and get one step closer to opening your business.
Set Your Own Rules: An operating agreement is your company’s founding document. Govern your business by your own guidelines, not the state’s.
Resolve Disputes: Set a binding agreement about the fundamentals of your business, covering ownership, rights, and responsibilities.
Protect Your LLC Status: Put a barrier between your personal assets and business liabilities.
FAQs
Is an LLC operating agreement required in Massachusetts?
According to Massachusetts state law, LLCs operating within the state aren't required to draft an operating agreement to run their business. However, you might still want to consider drafting this document as it comes with a multitude of benefits and can only protect your assets.
How does an LLC operating agreement help protect my assets?
A Massachusetts LLC operating agreement separates the members' personal assets from the company's assets and establishes it as an independent legal entity. An operating agreement also clearly defines the obligations and rules for all the existing members, ensuring everyone knows their share and ownership percentage in the company. Without the agreement, your personal assets are at risk of debt that might come from the company.
Who needs access to an operating agreement once it's drafted?
By rule, an operating agreement isn't available in the public records of your LLC. Only the company members have full access to the agreement. Still, lawyers, accountants, and some financial institutions might need access to your operating agreement for bookkeeping purposes or in case of a legal dispute.
How do I edit information on an operating agreement if membership changes?
Editing an operating agreement requires you to repeat the whole drafting process. Still, making adjustments is mandatory if you need to change ownership interest, add or remove members, fix any issues you've encountered over time, or make the rules and requirements more transparent for your and other members. Fortunately, you might not have to start from scratch this time but only note the necessary changes.
What other legal documents do I need to draft for my Massachusetts LLC?
You'll need a Certificate of Organization, also called Article of Organization, annual reports, and EIN for your Massachusetts LLC. Depending on what industry your company is in or what you're working with, you might need specific permits and licenses for your business.
Bibliography
Commonwealth of Massachusetts. "Limited Liability Companies and Limited Liability Partnerships." Accessed June 20, 2023.
Secretary of the Commonwealth of Massachusetts. "Limited Liability Company Information." Accessed June 20, 2023.
The 193rd General Court of the Commonwealth of Massachusetts. "Name of Limited Liability Company." Accessed June 20, 2023.
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