Mississippi LLC Operating Agreement: Drafting Checklist

Starting a business in Mississippi comes with different choices and obligations. One of the most important decisions is which type of business you wish to form, which will impact factors like company structure and income taxes. 

Forming a limited liability company (LLC) will help you avoid certain complications associated with other business formations, particularly regarding tax purposes.

When starting a foreign or domestic LLC in Mississippi, the most important document you’ll need to file will be your Articles of Organization.[1] But there’s one document you shouldn’t forget.

The document in question is your Mississippi LLC Operating Agreement. Let’s look at why this document matters and how to draft it.

Key Takeaways

• An operating agreement isn’t mandatory for LLC formation in Mississippi.

• Drafting an operating agreement will establish your LLC as a separate legal entity, protecting personal assets from company liabilities.

• Your operating agreement is an internal document, so you don’t need to file it with the Secretary of State’s office.

What Is an LLC Operating Agreement?

As an internal legal document, your operating agreement outlines the rules of LLC management, membership, and operations. You can draft this document during company formation or add it later.

The agreement defines crucial aspects of the business, from particular affairs of the company to member-related matters like ownership, liability, and indemnification. You will include a section with information about your business, including basics like your business name, industry, and the street address of your registered office.

The agreement can also state the name of your registered agent, also known as the designated service of process agent for your LLC.

State Requirements

In the state of Mississippi, LLCs don’t have to file an operating agreement. Furthermore, state law doesn’t mandate that your business have this document. However, state propositions become relevant if your LLC doesn’t have an operating agreement.

In particular, limited liability companies without an operating agreement lose the opportunity to handle certain internal affairs as they see fit. Without the agreement specifying the rules, your LLC must abide by the processes outlined in the Mississippi Limited Liability Company Act.[2]

LLC Operating Agreement Benefits

You might wonder why your operating agreement is so crucial if the state doesn’t make the document necessary for LLC forming. After all, the document doesn’t impact the LLC regarding business transactions.

We’ve already hinted at how an operating agreement can be helpful. But there are further benefits to having this document. Let’s look at them in more detail.

1. Ensure Limited Liability Status

Liability protection is among the most critical factors differentiating LLCs from other business types. It’s the key reason why business owners choose this business structure. 

Should your LLC get involved in a lawsuit or other dispute, the personal assets of the members, such as real estate, won’t be brought into question. In other words, the company’s liabilities won’t become your own.

While LLCs have this protection inherently, the operating agreement will solidify it further. This matters because anyone can challenge or even dispute your limited liability claims. You’ll avoid such risks by adopting this legal document.

2. Follow Your Own Business Rules

Mississippi LLCs need to abide by an operating agreement. Although your company doesn’t have to draft the document, the contract may come through default rules implemented by the state. These rules will apply automatically to any companies lacking an operating agreement.

Defaulting to the state regulations can be an issue for some businesses. In the case of a dispute, you’ll have little to no control over the situation. This doesn’t mean the state rules will be a detriment in every given case, but your options will certainly be limited.

An operating agreement will allow you to stay in control over all dealings of your company. This will ensure your approach stays customized and provide LLC members with clear directions for all essential company processes.

3. Write and Tailor Your Processes

A limited liability company runs everyday processes and operations, from business bank account management to marketing and sales. The issue that many small businesses face is with the people handling those critical activities. Often, the personnel tasked with these responsibilities will be subject to nothing more than a verbal agreement.

When key operations rely on such loose agreements, potential disputes can result in further complications. In the worst case, you could even lose control over certain aspects of the LLC.

Of course, the solution is to have written proof of crucial assignments in your documentation. An operating agreement will represent just that. Everything will be covered in the document, from tailored processes through membership responsibility to ownership issues.

Who Needs an Operating Agreement?

As we’ve discussed, the state of Mississippi doesn’t require an operating agreement. However, that doesn’t mean the document isn’t needed, especially for LLCs. Due to the benefits we’ve outlined previously, any limited liability company operating within the state would need an agreement.

You’ll want to have this document if having control over your LLC is important, particularly in case of disputes. The agreement will also help differentiate your LLC from a sole proprietorship, which is vital for sole-member LLCs.

Another example of a business needing an operating agreement is an LLC planning to change its status into an S corp. In this case, a more defined structure will make the transition easier.

Creating an operating agreement will be needed more often than not. You could argue that there’s no reason why an LLC wouldn’t need an operating agreement. On the other hand, there are plenty of reasons to draft this document, whether you want to grow or transform your business or simply make it work like a well-oiled machine.

Drafting Your Mississippi LLC Operating Agreement

LLC operating agreement templates exist; however, creating an operating agreement will often be more complex if you want to customize it to your LLC.

Although limited liability companies share certain traits, you’d be hard-pressed to find two LLCs that are exactly the same. Simply put, a template won’t work every time. You’ll need to draft a document tailored to your exact needs.

Luckily, we’ve got a list of no more than five steps. Following along, you can create an operating agreement with minimum hassle.

Step 1: Provide Business Information

Suppose your LLC is already formed or in the process of forming. In that case, the first step of this process will be quite simple. You can use the same information that you’ve included in your formation documents for the operating agreement. 

The required info will include:

• LLC name and place of business

• Purpose of the company

• Registered agent name and address

Your company in Mississippi can operate under an alternative name or “Doing Business As” (DBA). Some LLCs find great value in registering a DBA for branding purposes or to increase the commercial appeal of the business. If you’ve decided to register a DBA, you should include that name in the same section where the LLC name goes.

Step 2: List LLC Members

Once you’re done with the basic information, step two will have you compile a list of your LLC members. But the list will contain more than member names. It will include information about LLC ownership, the particular responsibilities of each member, and any roles assigned to them within the company.

This list confirms that each member has personal liability protection and clearly defines what each member owns and does in the LLC.

The latter will be of particular importance moving forward. If matters between LLC members aren’t precisely defined, such a situation could lead to internal disputes, which often end up messy. 

Does the LLC member list matter if you run a single-member LLC? The answer here is a resounding yes. A list containing a single name will provide the same benefits as any other. Your personal assets will still be protected. You’ll also have proof that your company can’t be treated as a sole proprietorship.

Step 3: Decide Member-Managed vs Manager-Managed

The next thing to take care of is the managerial structure of your LLC. Daily issues will need to be placed under the care of a particular person. 

According to Mississippi legislation, this person can be an LLC member or another party hired for management purposes.[3] This will make the difference between a member-managed and a manager-managed LLC.

A member-managed LLC has one member assume the company’s managerial role. This approach keeps the internal business close to the chest as a member will be more in tune with the big picture. As a downside, this type of management can lead to conflict between members if their views of the correct actions differ.

The member-managed structure will be beneficial for single-member businesses. In those cases, there’ll be no need to spend extra resources on hiring a third-party expert.

On the other hand, the manager-managed model will have an independent manager looking over crucial operations. Their independence can come in handy because they, unlike the members, won’t need to cover two fronts simultaneously. Instead, the manager will have a single task: enacting the rules defined in the operating agreement.

A multi-member LLC will benefit significantly from this model. The same goes for organizations where members already have too much on their plates, or no LLC member accepts the responsibility for regular operations.

Step 4: Layout Administrative Operations

Now that the groundwork for company structure is laid, it’s time to get to the processes and rules governing your organization's functions. The critical matter here will be approaching the administrative operations with utmost care and attention to detail.

You should define every process clearly and without room for different interpretations. Of course, this part of drafting your operating agreement will be quite complex. You’ll need to outline the member’s voting rights and capital contributions and determine who takes care of specific roles like IRS interactions and bank account management.

The factor that will make it somewhat challenging is that your solutions must be specific to your LLC. This means you’ll need to account for various situations and outline how your specific organization will handle them.

Step 5: Add and Remove LLC Members

The membership of your LLC isn’t set in stone. Members can leave, and new members may be onboarded, shifting the balance of ownership. Of course, these situations are quite specific, so your company will need clear instructions on how to proceed.

The processes defined here will include how new members are brought into the company, their contributions, and the procedures in case a member leaves the LLC. This section will also define processes in cases of buyouts or the company changing ownership. 

While you might think this step is relevant exclusively to multi-member LLCs, there are plenty of reasons why a single-member LLC should include this section in its operating agreement. The primary reason is growth. As an LLC grows, it will naturally accept new members. This will be much easier if there are rules and procedures for member onboarding.

Create Your Operating Agreement Through a Filing Service

The state of Mississippi doesn’t require you to draft an LLC operating agreement. If you create the document, you don't file it with the Secretary of State. But, creating the document will ensure your liability protection and make resolving any disputes easier.

If the drafting process seems daunting, Swyft Filings can help you shorten the time needed to start an LLC. We can help you in every regard, from filing crucial documents with state authorities to drafting an operating agreement.

If you haven’t formed your company yet, our expert, affordable services are available. We'll take care of your filing needs expediently and without additional complications. Don’t hesitate to get in touch with us and get started today.

FAQs

Is an LLC operating agreement required in Mississippi?

According to Mississippi law, an operating agreement isn’t necessary for a domestic or foreign LLC. Yet, while the state doesn’t require you to draft or file the agreement, having this document will be beneficial. Without one, your company will have to act according to the default operating rules defined by the state of Mississippi.

How does an LLC operating agreement help protect my assets?

An LLC operating agreement establishes your ownership structure. More than that, the agreement contains the record of each member’s initial capital contribution. Finally, this document defines liability, ensuring the security of your personal funds in case the LLC falls into debt.

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

LLC owners and members need uninterrupted access to the operating agreement. In manager-managed LLCs, the hired manager will require access to the document. Additional personnel may also require access to the operating agreement. For instance, financial or legal professionals assisting your organization could need to look at the document.

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

Procedures for editing or accessing the operating agreement are defined in the document itself. If the membership of your LLC changes, new members should get the same rights as the old ones. This means the new members might be able to authorize changes to the document.

What other legal documents need to be drafted for my Mississippi LLC?

You’ll must file Articles of Organization and Certificate of Formation to get your Mississippi LLC underway. In addition, filing annual reports to the Secretary of State will be necessary. As the name implies, these reports need to be submitted every year.

Bibliography

1. Mississippi Secretary of State. “Start Your Business in Mississippi.” Accessed June 30, 2023.

2. Mississippi Secretary of State. “Mississippi Limited Liability Company Act.” Accessed June 30, 2023.

3. Justia US Law. “2020 Mississippi Code.” Accessed June 30, 2023.