Nevada LLC Operating Agreement: Drafting Checklist

Suppose you want to start a limited liability company as your only Nevada business or another business to complement your incorporation. You need several documents, such as Articles of Organization, to get off on the right foot.

However, what does the state law say about your LLC operating agreement? You should file it as soon as possible to create a clear road map for your team, but is it mandatory?

Read on to learn if having an operating agreement is obligatory during your business formation and how you can benefit from this document.

Key Takeaways

• Nevada doesn’t require you to enter into an LLC operating agreement when starting a small business, but you should do so to lower the risk of personal liability.

• A Nevada LLC operating agreement includes critical information, like your company members and their responsibilities.

• The easiest way to file an operating agreement for your LLC is to contact a reliable service, such as Swyft Filings.

What Is an LLC Operating Agreement?

Nevada has many requirements for starting a limited liability company. For example, you must file Articles of Organization, obtain an Employer Identification Number (EIN), and elect a registered agent.[1] 

An operating agreement should also be on your checklist during your LLC formation. This internal document sets forth the rules and provisions that dictate how you’ll run your enterprise. It lists various operating procedures and how you make financial decisions.[2]

Once you and your members sign the agreement, it’s considered a legal document. It enables you to do things largely your way and avoid the risk of potentially harmful state laws applying to your business by default.

State Requirements

According to Nevada state law, you have some leeway when launching your LLC. One of the reasons for that is that the Nevada Secretary of State doesn’t mandate you to have an operating agreement, so deciding to enter into one is entirely up to you. You won’t be liable for not having one under Nevada's revised statutes or any other regulation.[3]

But does this mean you should forget about your operating agreement after handing in your Articles of Organization? Absolutely not. You’d miss out on many benefits that come with this internal document.

LLC Operating Agreement Benefits

We’ve already hinted at some benefits of having a Nevada LLC operating agreement. Here are some of the main reasons you should create this agreement for your business entity:

Personal Liability

What’s your biggest motivation for starting your LLC? If you’re like most other owners, you’re probably after the all-important limited liability status. It lets you separate your private property from company assets, rendering you immune to personal asset repossession in case of lawsuits.

But merely filing for your LLC isn’t enough to guarantee this protection. You need a document that proves your personal and enterprise assets are separate.

That’s where an operating agreement comes in. It proves to the state that you truly are an LLC, eliminating the risk of personal liability.

Clear Responsibilities

Oral agreements are rarely used in the business sphere. Those concerning your business plan and other critical aspects should come in writing so everyone in your company is on the same page.

The same goes for your operating agreement. Once you set it up, you and other members of your LLC know exactly how decision-making works. That’s because the document lists the roles and responsibilities of each stakeholder. In a nutshell, it provides a road map for every member to follow when executing your vision.

No Uncertainty

Profit distribution can be problematic if you don’t know how much capital each member contributes to the organization. Likewise, what happens if you add new members or an original member leaves the enterprise? You need something that tells you how to handle those situations.

Your operating agreement contains many essential details to reduce the uncertainty of running an LLC. Showing how much money each owner has brought to the table reveals how to distribute profits accurately. Additionally, it points you in the right direction when adding or removing members.

Who Needs an Operating Agreement?

Whether you’ve completed an S corp or LLC business formation, you should enter into an operating agreement.

For starters, it protects business owners from state default rules, which would otherwise result in personal liability. Besides making sense from a state law perspective, having an operating agreement is also beneficial if you want to clearly divide roles and responsibilities.

An operating agreement is your best friend when setting up an LLC, irrespective of your company size, ownership structure, and place of business.

Drafting Your Nevada LLC Operating Agreement

Now that you know a written operating agreement is necessary, let’s draft this legal document. The Nevada Secretary of State gives you some leeway here, too, as you can create the document from scratch or use an LLC operating agreement template.

Whatever route you take, your agreement should contain certain sections. Here’s an in-depth overview of those sections.

Step 1: Provide Business Information

The first step in the drafting process is to provide basic information about your organization. Think of this part as a way to introduce your enterprise. It should contain much of the same data as your Articles of Organization:

• Your LLC business name: Be sure to use the same name as in your Articles of Organization, including the part that distinguishes you from other structures. For example, there should be a “limited liability company, “limited company, “LLC,” or “LC” next to your business name.

• Place of business (LLC formation): Provide the physical street address of your company as stated in your Articles of Organization. P.O. boxes are not allowed here.

• Registered agent: Apart from receiving service of process, your registered agent also accepts other documents, such as annual reports and tax reminders. Due to such tremendous importance, it’s no surprise you should add your agent information to your operating agreement.[4]

• Industry: To wrap up this section, state what your company offers. Describe briefly the products or services you provide and mention the industry where you operate.

Step 2: List LLC Members

Listing your LLC members should be the next item on your to-do list. Like the previous section, this one is pretty straightforward. 

It’s especially simple if you have a single-member LLC. As the sole member of your enterprise, you need only provide your roles and responsibilities. Stating ownership interest, member contributions, and voting rights is straightforward too.

This part of your agreement will be longer if you have a multi-member LLC. Take your time and incorporate the following member information into your agreement:

• Names of business owners and their ownership interest 

• Addresses of all members of the LLC

• Statements that guarantee personal liability protection for each member

• Voting rights according to member contributions

Step 3: Decide Member-Managed vs Manager-Managed

You’ve launched or plan on launching an LLC, but does this mean you must run your enterprise independently? It doesn’t, and there are two options: having a member-managed and a manager-managed organization. Your internal document should reflect your choice.

Each LLC management structure has its pros and cons.

Member-Managed LLC Pros

If you have a multi-member or single-member LLC, you’re in the driver’s seat of your enterprise. There are no mediators in decision-making, giving you direct control over your activities. This is an excellent solution for members of the LLC who want to be involved in the entity's day-to-day operations.

The easiest way to determine voting rights in decision-making is to base them on capital contributions. If you brought 50% of the total capital, your vote is worth twice as much as the person who contributed 25% to the company.

Member LLC management is also more affordable than manager-managed solutions. You don’t have to pay professional managers to do your work, whether you’re the sole member or just one member of your enterprise.

Member-Managed LLC Cons

A member-managed LLC requires constant involvement on your part. You often need to be present at your office during regular business hours.

Member management also makes it more difficult to attract investors. In other words, you may struggle to bring new owners on board because they might not want to be full-time managing members of your LLC.

Manager-Managed LLC Pros

You free up your schedule by hiring a professional manager for your LLC. With fewer duties, you can focus on strategic activities or take an occasional break from work.  

Since manager management goes easier on LLC owners, people are more willing to invest in businesses with this structure. This way, you can expand your company more easily.  

Manager-Managed LLC Cons

The flip side of manager-managed businesses is that the owners give up some control. They authorize managers to make decisions on their behalf, which might not always be smart.  

Also, today’s managers can make well over $100K per month.[5] The expense might be too high for some business owners.

Step 4: Layout Administrative Operations

Some of your administrative operations might be in your business plan. These are essential because they tell you how to go about specific situations.

The operating agreement allows you to elaborate on these operating procedures, outlining:

• Who’s in charge of annual report filing?

• How do capital contributions affect your voting rights? Which members have a greater say in your decision-making?

• Who manages your business bank account and oversees transactions?

• How do profit distributions and allocation work?

• Who’s responsible for matters of your business license?

• Who communicates with the IRS and submits any paperwork requested by this body?

• How are other day-to-day operations performed (e.g., marketing activities and equipment maintenance)?

Step 5: Add and Remove Members

Chances are, you’ll change ownership as your business grows or you tweak your operations. Some members may drop out, while other business owners may want to join your collective. Either way, the changes should be reflected in your internal document:

• How do your voting rights change if switching from a single-member LLC to a multi-member organization?

• What’s the membership interest of new members?

• What are the individual member contributions of new business owners?

• How much do ownership percentages grow for remaining members when an owner leaves?

• Do all members of an LLC get to vote on whether you should add another business owner?

• How will you handle different buyout or indemnification scenarios?

This section should be detailed. The more information you add, the less guesswork when adding and removing members.

Create Your Operating Agreement Through a Filing Service

A Nevada LLC operating agreement can be the ace up your sleeve if you want to start on the right foot. It acts as your guide and neutralizes the risk of a default state law hurting your small business.

But drafting an agreement can be a lengthy process and might keep you from focusing on other aspects of your business formation.

Whether you want to start an LLC or your formation is well underway, we’re at your beck and call. Our operating agreement service is fast and hassle-free, ensuring you have this document by your side when you need it most.

FAQs

Is an LLC operating agreement required in Nevada?

No. Nevada doesn’t require small business owners to draw up an operating agreement. Nevertheless, you should create one to lower the chances of personal liability and ensure all members are on the same page from the get-go.

How does an LLC operating agreement help protect my assets?

An LLC operating agreement demonstrates you truly own an LLC. It provides key information about your business structure that proves your personal assets are separate from company property. You can present this paper in court as evidence in case of a lawsuit to avoid a major financial loss.

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

All LLC members should have access to your operating agreement after the drafting. This allows them to review the information within the document to verify all figures and claims are correct.

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

Editing information on your operating agreement due to membership changes normally requires you to draft another agreement containing the new member's details.

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

In addition to your operating agreement, you must draft and submit your Articles of Organization to the Nevada Secretary of State. Additionally, some paperwork may be necessary when applying for your EIN or business licenses.

Bibliography

1. Internal Revenue Service. “Employer Identification Numbers.” Accessed June 22, 2023.

2. U.S. Small Business Administration. “Basic Information About Operating Agreements.” Accessed June 22, 2023.

3. Nevada Revised Statutes. “Table of Titles and Chapters.” Accessed June 22, 2023.

4. Nevada Secretary of State. “Registered Agents.” Accessed June 22, 2023.

5. U.S. Bureau of Labor Statistics. “Occupational Outlook Handbook.” Accessed June 22, 2023.