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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.
Creating an LLC in New Jersey takes serious consideration and paperwork on the founder's part. But formulating the operating agreement is one of the most beneficial parts of this process. Even if you don't write this document during the formation process, you still need it to ensure that your LLC functions at its best.
This contract outlines all the details about how your business should run and is just as advantageous for a single-member LLC as it is for a multi-member LLC.
Key Takeaways
An LLC operating agreement is a legal document that outlines your LLC's operations and ownership structure.
While not mandated by state law in New Jersey, having a New Jersey LLC operating agreement is highly recommended for clarity in management and legal protection.
Small business owners should consider drafting this document as early as possible to establish clear guidelines for their New Jersey limited liability company.
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 seeks to clarify the duties and organization of a limited liability company. It outlines how much each LLC member owns, how to conduct votes, who can access profits or losses (including company debts), and how members may come and go.
This document works to protect everyone involved by providing a guideline for the structure and operations of the LLC.[1] Furthermore, an operating agreement could include clauses on:
Indemnification and liability clauses: These clauses protect the members and managers from personal liability for actions that occur within the scope of their LLC duties, so their assets are safe.
Non-compete agreements: Those agreements can ensure that members don't engage in business activities that directly compete with the LLC, like sharing company information that shouldn't be public.
Succession planning: Planning for the future protects the continuity of a company and outlines what happens if a member passes away or cannot fulfill their duties.
Amendment procedures: This section outlines ways to change the operational agreement if necessary so the LLC can adapt to future events.
Record keeping and reporting: These clauses set the standards for financial transparency and record-keeping within the LLC.
State Requirements
Forming an LLC in New Jersey can be optimal for setting up your new business or expanding. Still, you won't be able to tailor the company's operations according to your preferences without an operating agreement.
This is where the New Jersey Revised Uniform Limited Liability Company Act comes in. While it isn’t legally required for an LLC in the state to have an operating agreement, having one can help ensure that things run smoothly and in line with your wishes rather than follow default state laws.[2]
Operating agreements provide high flexibility for LLCs to meet their specific requirements.
Although verbal agreements are valid, it is strongly suggested that you have a written document for clarity and enforceability.
Operating agreements do not need to be submitted to the state but should be kept for internal reference.
With changes in business or state laws, updating operating agreements is critical.
LLC Operating Agreement Benefits
Grants business owners and members the liberty to manage their company in a way that matches their vision and leadership style, adding the flexibility to adapt their strategies based on ever-changing markets or demands.
Shows investors and lenders that a business is being run professionally, giving them more confidence when considering whether it's worth investing or lending money to this business.
Prepares a business for all possible scenarios that can happen from the death or disablement of a partner with an effective strategy to maintain the business operations even in times of adversity.
Allows members to personalize their financial outcomes by modifying how they split the profits and losses amongst themselves, granting potential tax benefits since it deviates from the standard regulations of the New Jersey law.
Lays out the roles of all the members dealing with the company’s affairs and gives everyone a good understanding of their responsibilities and what they can expect in return.
Allows you and your partners to design rules that are specifically tailored for your unique company, meaning you're not bound by any pre-existing or outdated regulations.
Serves as proof that the company took the time to make sure its rules and regulations were clearly outlined, with no negligence on its part.
Provides a secure place to store private details, such as who owns how much and who is in charge of what.
Who Needs an Operating Agreement?
If you are running an LLC in New Jersey, regardless of size or industry, then having an operating agreement is worth having. Whether your business is a single-member LLC, multi-member LLC, or has opted for a different structure, like an S corporation, you can protect yourself from lingering liabilities.
A formal agreement will also help ensure that your business's rules and regulations are exactly what you want them to be — not whatever default laws apply.
Drafting Your New Jersey LLC Operating Agreement
Creating an LLC operating agreement can be daunting at first, but it pays off, and following step-by-step instructions will make it much more straightforward.
Each business has its own unique traits and compliance requirements under state law. You have options for drafting: you can start from scratch or use templates readily available on the web. Whichever route you choose, include all the necessary information for maximum effect.
Step 1: Provide Business Information
The first step in creating an LLC is providing the information this document demands. You'll need to pick a unique business name that meets New Jersey's naming conventions, like including "LLC" or "limited liability company" in its LLC name. Also, include your business's physical address and describe your industry.
Having a registered agent in place will help you receive legal documents on behalf of the LLC. Additionally, briefly explain what your LLC hopes to achieve. Finally, don't forget to obtain an Employer Identification Number (EIN) from the IRS; it will enable you to hire employees and handle taxes more efficiently.
Step 2: List LLC Members
In this step, you must list out the ownership structure of your LLC. Remember to include full names, contact details, and each member's ownership percentage.
To avoid confusion or potential disputes, assign specific roles and responsibilities to each member. Additionally, be mindful to jot down all capital contributions made by each individual and how additional contributions should be handled. For multi-member LLCs, it is critical to devise a plan for making decisions and sharing profits and losses among members.
Step 3: Decide Member-Managed vs Manager-Managed
Carefully choosing a management system is essential for any organization's success. Your limited liability company must decide if the members will run it or whether you will appoint a manager to take care of day-to-day operations and decision-making.
In a member-managed LLC, all members are hands-on and involved in business activities and decisions. Small LLCs usually choose this management structure so owners can control what is happening.
On the other hand, in a manager-managed LLC, one person or a team of people is appointed to handle all the tasks related to running the company — even if they're not part of the LLC. This structure works best when members want to remain passive investors or when multiple members need to delegate responsibilities.
Step 4: Layout Administrative Operations
The fourth stage in forming an LLC is making the necessary ground rules to govern how the business entity operates. This includes outlining who gets what in terms of profits and losses for tax purposes, which is of central importance. You must also decide when and how often member meetings will happen and what constitutes a valid quorum.
Voting rights are also a part of this. They include how votes are weighted and the percentage necessary for approving different decisions. The agreement should clarify the process for filing annual reports and other obligatory papers from regulatory bodies such as the IRS.
Furthermore, you'll need to determine the LLC's official tax classification (e.g., a disregarded entity, partnership, or corporation) and set out how to open and manage company bank accounts.
Step 5: Add and Remove LLC Members
This stage is about establishing procedures for allowing new members to join the LLC and how existing members might exit. Clear procedures are essential for smooth transitions and for protecting all involved parties.
These procedures should include how members can transfer their ownership interest, what events (retirement, bankruptcy, death, etc.) may trigger a buyout, and how the ownership percentages and voting rights will be recalculated when new or old members leave.
Lastly, decide the rules the LLC must follow when settling debts and liabilities if a member is no longer with the company.
Create Your Operating Agreement Through a Filing Service
Now that you understand the intricacies of drafting an LLC operating agreement, consider allowing Swyft Filings to create this document for you. Our service is one of the most affordable among competitors, and we will be there to ensure that your operating agreement complies with New Jersey state law.
If you're looking for the next step after forming a New Jersey LLC, our LLC operating agreement service will provide you with a compliant document for conducting business in New Jersey. Pay a reasonable filing fee and start your business off on the right foot.
File for your LLC through Swift Filings online and include our LLC operating agreement add-on in your cart to ensure all your necessary documents are completed at the beginning.
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 New Jersey?
An LLC operating agreement isn't required in the state of New Jersey, but it's an excellent idea to have one. It will help you avoid confusion, ensure everyone knows their roles and responsibilities, and protect the members from future disputes or misunderstandings.
How does an LLC operating agreement help protect my assets?
A key concern is protecting your personal assets if you own an LLC. An LLC operating agreement helps to do this by establishing and maintaining the limited liability status of your LLC, which separates any company liabilities from your individual assets. This way, no matter what happens with the business, you won't be held financially responsible for its debts or obligations.
Who needs access to an operating agreement once it's drafted?
Everyone who's part of the business should be able to view and use the document. It's also necessary when creating a business bank account or engaging in legal transactions.
How do I edit information on an operating agreement if membership changes?
If the information in your document needs to be updated due to changes in membership, you can easily do so. Just follow the instructions in the operating agreement or whatever protocols state law requires. It's essential to inform all members of any alterations and keep a record of the modifications.
What other legal documents do I need to draft for my New Jersey LLC?
If you're forming a New Jersey LLC, besides the Operating Agreement, you should also get your Articles of Organization drawn up. You'll need an EIN from the IRS and possibly other licenses or permits, depending on what industry you're in or where your business is located.
Bibliography
NJ Business. "Limited Liability Company (LLC)." June 12, 2023.
Justia US Law. "Chapter 2C - Revised Uniform Limited Liability Company Act." June 12, 2023.
Justia US Law. "Section 42:2C-37 - Management of limited liability company." June 12, 2023.
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