Minnesota LLC Operating Agreement: Drafting Checklist

If you’re considering establishing an LLC in Minnesota, you’ve probably started creating your Articles of Organization, come up with a unique business name, and have elected a resident agent or listed a registered office. When you file the Articles of Organization with the Secretary of State office, your LLC will be almost up and running.

However, an LLC operating agreement is one of the pivotal documents you’ll still need to complete. An operating agreement is crucial whether you’re forming your LLC or have set it up recently. This document lays the foundation for your LLC’s operations and is indispensable for smooth sailing.

Key Takeaways

• An LLC operating agreement is a legal document that outlines details about the inner workings of your LLC.

• While the Minnesota Limited Liability Company Act doesn’t demand it, an LLC operating agreement benefits small businesses and large corporations by avoiding defaults set by state law.

• It’s possible to draft an LLC operating agreement during the LLC formation or afterward, and a filing service can make it simpler and faster.

What Is an LLC Operating Agreement?

An LLC operating agreement explains the structure of your LLC, its members, their responsibilities, and the overall management of the company.[1] Unlike the Articles of Organization, it is not necessary to register this legal document with the Secretary of State during LLC formation. However, your financial institution or the Internal Revenue Service may ask for it when applying for a business bank account or EIN.

The operating agreement is the core of your LLC. It explains the “hows” and “whys” of your ownership structure and operations so that everyone participating knows what to anticipate. This builds trust between members and strengthens the company. Without an operating agreement, your company will default to state law, which may not have the flexibility you or your associates need.

State Requirements

Creating a Minnesota LLC operating agreement is a wise decision. The Minnesota Statutes, specifically the Limited Liability Company Act (Chapter 322C), clarify that an operating agreement can keep your business entity on track because they will respect the rules you lay out in the agreement.[2] It’s also a way to steer your business back on track if anything goes wrong or in case of disputes.

In the state of Minnesota, you don’t need to draw up a formal document and can only have an operating agreement between parties.[3] However, it is a good idea to write it down and keep it somewhere safe. Doing so eliminates most potential disputes or misunderstandings. You won’t need to register it with the Secretary of State office. The state considers it an internal document so you can store it with other business documents.

However, once you create and file the document internally, it’s assumed that all members of the LLC and the company itself as a legal entity assent to the rules set out by the agreement.

LLC Operating Agreement Benefits

Drafting an LLC operating agreement is a great idea for many reasons. It will:

• Ensure everyone is on the same page and eliminate potential disputes.

• Protect your personal finances by creating a division between you and the business.

• Facilitate opening up a bank account or getting approvals from regulatory bodies.

In short, having an LLC operating agreement in place is something to consider even if, at first, it doesn’t seem necessary.

An operating agreement can provide a customized approach to structuring the rules and regulations of your LLC. You can decide how to split profits and losses, how you will conduct meetings, and who is eligible for membership. Without an agreement, however, you would have to adhere to the state’s typical standards — which may not match your desired intentions for your business.

Who Needs an Operating Agreement?

If the possibility of needing an LLC operating agreement has crossed your mind, you probably need one. Whether big or small, any business structured as an LLC benefits greatly from an operating agreement. Even if the company is only a sole proprietorship or has no more than two members, having an operating agreement, especially a written one, is an excellent way of respecting the state’s rules while protecting your autonomy and having flexibility.

As a single-member LLC, doing away with an operating agreement might be tempting. After all, no one else would disagree or share profits with you. Having this document is more than just preventing member quarrels — it also distinguishes between business and personal matters. It ensures that any problems that arise from the company are not held against you as an individual. It protects your limited liability status.

It may be necessary to submit this document when opening a business bank account, applying for a loan, or registering for income tax with the IRS. This makes the document a requirement, even if the law doesn’t explicitly say so.

An operating agreement can also be a lifesaver for multi-member LLCs in case of disagreements among the owners or members. It outlines everyone’s rights and responsibilities in detail, what to do when members come and leave, and how to handle differences of opinion. It also functions as a safety net for everyone involved in the business.

Drafting Your Minnesota LLC Operating Agreement

Drafting an LLC operating agreement can be challenging because of the paperwork that goes into it. It needs to include every aspect of your business. You can start from scratch or use an LLC operating agreement template to simplify things and ensure you don’t overlook anything. Ensure the document meets the Minnesota Secretary of State’s rules and regulations. Here is a helpful overview of what to do to aid you in crafting the operating agreement.

Step 1: Provide Business Information

When creating your LLC, you need to list its basic information. This information includes the official LLC name, address, and industry sector or business service type. These details will also be necessary for your Articles of Organization (also known as a Certificate of Organization in some states). Have the contact information for your registered agent ready, as well as the date you formed the LLC.

To be an LLC in Minnesota, you must have a unique business name that sets it apart from other existing businesses. This name should also include the terms “limited liability company” or simply “LLC” at the end of the company name. For your company’s address, list the physical location of your LLC. You can use your home address as the registered office if you run your business from there, but expect a lot of spam if you don’t have a registered agent.

The registered agent takes care of service of process for any legal documents on your LLC’s behalf. This individual must be present in Minnesota and available during regular work hours for in-person meetings.

Step 2: List LLC Members

Gather information on every individual who is a part of the LLC — the members themselves, the amount of the company they own, and their duties. This includes single-member LLCs and multi-member LLCs. You should clearly document every person’s share in the business and voting authority.

The membership interest in an LLC is generally proportional to the amount of money or property each member brings to the table. However, if you’re creative enough, you can devise a more distinct plan for divvying up the stakes among all members involved in your business venture using an operating agreement.

The LLC can choose how members should be able to vote. Variations on the voting rights may be granting each individual a vote for their percentage of ownership or offering one vote to every member regardless of their equity stake in the LLC. It’s up to the LLC to decide what works best for everyone.

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

At this stage, it’s time to decide who will run the LLC. The decision is between a member-managed or manager-managed business structure.

If the LLC is member-managed, all members on the board will be in charge of making decisions. This is a hands-on approach that could work for different-sized businesses but, for the most part, is preferable for small businesses.

You may also opt for a manager-managed LLC, whereby somebody from outside the business is chosen to act as “manager” and steer the company in the chosen direction. This arrangement is often better for larger or multinational companies with many shareholders or when the owners prefer a more passive position.

Step 4: Lay Out Administrative Operations

In this step, determine how the business entity will operate day-to-day. Lay out how you’ll divide profits and losses, set up meetings for members to vote on businesswide decisions, and create annual reports. You can modify this section to suit your company’s specific needs.

Think about profit and loss distribution. Usually, the percentage of the capital contribution someone invests into the business will define how much they get back from the company. This is also the default state, which would apply if you don’t have an operating agreement. However, you and your partners can agree upon different rules.

The agreement should also establish voting rights and what constitutes a valid quorum of members when making decisions. Aside from voting, you can define how often and for what reason you should hold general meetings.

Lastly, lay out rules for approaching yearly reports for every calendar year. Even though Minnesota does not demand LLCs to submit annual reports, they can illustrate how the business progresses and areas of improvement. Through these reports, you can understand the changing tides that affect your company and recognize when your agreement is worth amending.

Step 5: Add and Remove LLC Members

Your operating agreement should also include the process of adding or removing members. This involves figuring out how much someone needs to invest in becoming a partner, what happens when a member wants or needs to leave, and how to split up their stake once they’re out of the picture.

The necessary steps to include new members and lose old ones should be simple and easy to understand. You should explicitly lay out the criteria for the buy-in price and how you’ll figure out one’s portion of ownership.

When a partner decides to depart, the operating agreement should explain how to split their share between the remaining members. It should also have a buyout or buy-sell clause, which describes how a member can sell their ownership stake in the LLC.

Create Your Operating Agreement Through a Filing Service

Now that you have grasped the intricate details of preparing an LLC operating agreement, you may want to save time and outsource it to a professional. A filing service might be exactly what you want. Here at Swyft Filings, we’ll take the weight off your back. This way, you can focus on running your company instead of legalities.

If you’re an aspiring business owner who hasn’t created an LLC yet or a current business owner pending other legal paperwork, let us help you. Our filing fees for LLC operating agreement services are among the lowest on the market, giving some of the best value for your money.

When you use our services to start your LLC, you can avoid mistakes and be confident that your operating agreement will adhere to Minnesota state regulations. Get started today!

FAQs

Is an LLC Operating Agreement required in Minnesota?

In Minnesota, an LLC operating agreement is not a legal requirement but is still a valuable document. This document creates a solid structure for running your business and safeguards your individual assets.

How does an LLC Operating Agreement help protect my assets?

A limited liability company operating agreement can protect your own property from an organization’s liabilities. This ensures that your personal belongings and money won’t be in danger if legal issues arise.

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

Any managers and members of the LLC should have their own copies of the operating agreement. Furthermore, it could be necessary to provide this document to banks or investors when opening a business account. Hand a copy to your lawyer, too, so they can give you legal advice more easily should an issue arise.

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

You can reflect any changes to the membership of your LLC in its operating agreement at any point. The document should include instructions on how to amend it from the get-go.

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

Apart from formulating the operating agreement, you will also need to file your Articles of Organization, complete an application for an Employer Identification Number (EIN), and get a business license or specific permits, depending on your sector.[4]

Bibliography

1. Minnesota Department of Employment and Economic Development. “Forming a Limited Liability Company.” Accessed June 30, 2023.

2. Minnesota Revisor of Statutes. 322C.0110.” Accessed June 30, 2023.

3. Minnesota Office of the Revisor of Statutes. "322C." Accessed June 30, 2023.

4. Minnesota Secretary Of State. “Minnesota Limited Liability Company Forms.” Accessed June 30, 2023.