Ohio LLC Operating Agreement: Drafting Checklist

Filing an Ohio LLC requires specific paperwork you must draft before your limited liability company can become operational. Your Ohio business must register with the Ohio Secretary of State and the Department of Taxation. In addition, you’ll need an Employer Identification Number (EIN) and licenses and permits that apply to your business.[1]

Besides the mentioned documents, the formation process for any LLC, be it a small business or a larger endeavor, will include an LLC operating agreement. This document is vital; filing it as early as possible would be best.

Why is the operating agreement so crucial for your business?

Interestingly, it’s not because the agreement is mandated by Ohio state law. Instead, the operating agreement is essential because it defines the operations of your LLC and serves as a cornerstone of your company’s operational structure.

Let’s look at an LLC operating agreement and what you must do to draft this document successfully.

Key Takeaways

• An LLC operating agreement organizes your LLC and its daily procedures in full detail.

• New small business owners can protect themselves from liability through the operating agreement.

• The operating agreement is a legal document but isn’t required to start a business in the state of Ohio.

• Drafting the agreement can be complicated, so hiring a professional service for the job will save you precious time and money.

What Is an LLC Operating Agreement?

Your LLC operating agreement is a legal document that isn’t mandated by the state of Ohio but plays a significant role in your organization. The agreement outlines the rules your limited liability company will adhere to regarding company operations.

The operating agreement has plenty in common with Articles of Organization or Articles of Incorporation. It creates a comprehensive structure of the LLC’s financial and decision-making processes. This is crucial in defining precisely what the LLC will be and how it will function.

The operating agreement must be approved and signed by LLC members, i.e., the company’s owners. These key players determine the rules they’ll be obligated to follow from then on.

The document specifies several key factors:

• What percentage of the company does each member own?

• What are each member’s voting rights?

• Which responsibilities do members hold individually?

• What are each member’s and company manager’s duties?

• Which powers do managers and members have when fulfilling their duties?

• What is the distribution of the company’s losses and profits?

• How and when do members hold meetings?

• What are the procedures for interest transfer between members?

• What happens if a member dies?[2]

State Requirements

According to state law, no Ohio LLC has to file its operating agreement with the Ohio Secretary of State in Columbus. This means the Ohio revised code allows any Ohio business to operate unhindered, even without an operating agreement.

However, Ohio law also mandates that businesses without an operating agreement adhere to the default state rules, beginning at the company’s effective date.

LLC Operating Agreement Benefits

Although the operating agreement is an internal document of an LLC business entity, it can still bring particular benefits to the organization and its members.

The primary benefit of the agreement is that it reinforces the differentiation between the company and its owners. Once an operating agreement is accepted according to the LLC’s business plan, the owners no longer need to bear responsibility for the company’s liabilities.

This relationship in which the LLC is viewed as an entity within itself is already established by law. However, the organization isn’t regarded as a separate entity in all cases - there may be exceptions, especially in LLCs with a single owner. In such cases, the organization may be seen legally as a sole proprietorship rather than a limited liability company.

The second benefit is getting internal affairs into order and clarifying company roles. Without a written agreement outlining the rules, regular operations may become subject to confusion. This can lead to increased tensions during particularly sensitive operations and, as a result, reduced effectiveness.

Finally, certain dealings regarding your company bank account become more straightforward with an operating agreement in place. Some banks will even ask to see the agreement before issuing a company loan.

All these benefits are available only if the operating agreement is written correctly. To that end, seeking legal advice before moving forward with the document would be wise.

Who Needs an Operating Agreement?

Operating agreements are made within LLC formations according to their place of business. An Ohio LLC and a foreign LLC doing business in Ohio should have this document. On the other hand, business entities like sole proprietorships, corporations (C, B, and S-Corp), and other companies that aren’t LLCs don’t need the agreement for successful business formation.

There’s no limit regarding company size when discussing whether the organization needs an operating agreement. Solo business owners acting as the only members of their LLCs should still draft this document. It’s worth repeating that although state law doesn’t mandate the agreement, not having it means the company must operate under state default rules.

Drafting Your Ohio LLC Operating Agreement

When drafting your written operating agreement, you must include specific information like an LLC member list, management type, and a layout of administrative operations.

You may draft this legal document from scratch or use an LLC operating agreement template, which you can easily find online. Note that, however you go about it, you won’t need to worry about filing the agreement on business days with the Secretary of State or covering filing fees. The reason is simple: the Ohio Secretary of State neither mandates nor accepts operating agreement filings.

Step 1: Provide Business Information

The business info mentioned here is the same basic information from your Articles of Organization:

• Name of the company (business name)

• Business address (place of business)

• Service of process

• Statutory agent

• Employer Identification Number

Simply put, it’s the same data provided for informational purposes when starting your LLC formation.

Step 2: List LLC Members

Listing the members of an LLC serves multiple purposes. First, it differentiates the company’s affairs from the business owner’s personal assets. This way, company liabilities don’t translate into personal liability.

Secondly, it defines ownership interest, i.e., ownership percentages. The member’s ownership may also reflect on member contributions, fleshing out each owner’s role in the company. This is a crucial step for a multi-member LLC and a sole-member startup or single-member LLC.

Finally, you should clearly define the exact role of each stakeholder. Doing so will help avoid future misunderstandings.

Step 3: Decide Member-managed vs Manager-managed

The difference between these two management structures is in who handles the LLC management and affairs of the company in day-to-day operations. As the names imply, the person or persons in charge may be LLC members or dedicated operation managers.

It’s worth mentioning that the manager in the manager-managed model is an employee rather than a member. This means that even a single-member LLC can be organized this way. If you’re unsure which model would be better for your company, asking for legal advice would be a good idea.

Step 4: Lay Out Administrative Operations

Administrative operations refer to a broad range of activities related to various business situations. For example, these dealings involve the company’s bank account, allocation and distributions, and the IRS.

This section outlines essential day-to-day and long-term matters of your business as a legal entity. Member-related operations are also outlined here, like voting rights, capital contributions, and any other specific needs unique to your business. When laying out your business plan in this section, you can customize this internal document completely, making it tailored for your LLC.

Step 5: Add and Remove LLC Members

Finally, the operating agreement must account for what happens with the membership structure itself. When old members of an LLC leave the organization and new members join, the rules of buyout, indemnification, and roles of the remaining members must be clear.

This section of the internal document determines membership interest, member contributions, ownership percentages, and voting rights for new members. The section should also select the effective date of change in the membership. What happens to companies run by solo business owners, i.e., single-member LLCs, when they expand is also of interest here.

Create Your Operating Agreement Through a Filing Service

Drafting an operating agreement isn’t easy, especially if you want to do it correctly. Plenty of careful consideration and legal know-how goes into creating this document, regardless of whether you’re running a small business or a massive LLC. If you’re just now starting a business, taking this burden off your plate may be a good idea.

Luckily, Swyft Filings can help you get your Ohio business running with much less effort. Our services help new business owners in Ohio through the formation process and assist those who’ve already created their companies.

Don’t let yourself struggle with the first steps of your journey, and start your business off on the right foot. File for your LLC through us today and include our LLC operating agreement add-on in your cart to ensure all necessary documents get completed at the beginning.

If you’re looking for the next step after forming your LLC, our LLC operating agreement service ensures you have a compliant document for conducting business in Ohio. 

It’s worth mentioning that Swyft Filings has a much more available and affordable service compared to its competitors. Working with Swyft Filings will mean you can devote your full attention to what you do best — running your brand-new business.

FAQs

Is an LLC Operating Agreement required in Ohio?

Having an operating agreement for your Ohio LLC is highly recommended to make business operations clear and well-defined. However, the state of Ohio doesn’t require you to file the agreement.

How does an LLC Operating Agreement help protect my assets?

An operating agreement defines and solidifies your business as an LLC. This way, the agreement eliminates any possibility of you personally being liable for business debt and similar issues.

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

LLC members must access the operating agreement, particularly when internal misunderstandings need to be clarified.

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

The currently existing membership makes all decisions related to the operating agreement by voting. Therefore, editing particular information in the document won’t be complicated, even if the membership consists of different people.

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

To file an LLC in Ohio, you’ll need a registration with the Ohio Secretary of State, an Employer Identification Number (EIN), Ohio Department of Taxation registration, and any applicable business permits and licenses.

Bibliography

1. Ohio Secretary of State. “Starting a Business.” Accessed June 8, 2023.

2. U.S. Small Business Administration. “Basic Information About Operating Agreements.” Accessed June 8, 2023.