A Virginia Limited Liability Company (LLC) Operating Agreement is, in essence, your company's operational playbook. Consider it a handy operator's manual that outlines the rules, roles, and processes crucial to navigating your business. Covering everything from equity ownership to decision-making protocols, it's a guiding light that adds structure to your business and helps avoid potential disputes.
This agreement, governed by Virginia's LLC statutes, is where you'd lay out significant elements such as roles of the members, decision-making paradigms, and conflict resolution mechanisms. By providing this framework, you can mitigate misunderstandings and pave the way to smoother business operations.
No, it's not legally required in Virginia under § 13.1-1023. Single-member LLCs need an operating agreement to preserve their corporate veil and to prove ownership. And multi-member LLCs need one to help provide operating guidance, determine voting rights and contributions.
Read on to learn more about Virginia operating agreements, including:
Here are some key components that are typically included in a Virginia LLC operating agreement:
Let's tackle the typical elements found in such an agreement, offering some sample verbiage for each to steer you in the right direction.
At this point, the name of your LLC is likely already decided (you would have determined it when submitting your LLC's formation documents to your home state), but you’d also want to briefly describe the LLC's purpose. Being over-specific can be limiting. A more general purpose statement keeps doors open for future opportunities without the need to refile documents.
OPERATING AGREEMENT of [COMPANY NAME]
This operating agreement is adopted as of [Date] (the “Effective Date”), by [Member’s Name] , an individual and the sole member (the “Member”) of [Company Name] (the “Company”).
The Member hereby adopts this agreement as the operating agreement of the Company, which agreement sets forth the entire understanding of the Member regarding its subject matter and supersedes all prior understandings and agreements regarding its subject matter.
The purpose of the Company is [ Company Purpose] , and the conduct of other activities as may be necessary or appropriate to promote the stated purposes, and to engage in any other lawful business or activity for which a limited liability company may be organized under the Act.
This section lets you specify whether your LLC operates under a member or manager model. It establishes each member’s rights and responsibilities, from capital injections, voting rights, to the managerial hierarchy. You might think this is needless for a single-member LLC, but it's fundamental in formalizing your single-member business structure.
The business and affairs of the Company will be managed by the Member. The vote, action, decision, or consent of the Member will constitute a valid decision of the Member and the Company. The Member may appoint one or more officers (including the Member, if the Member is an individual) who will have such powers and authority to act on behalf of the Company granted to them by the Member.
The business and affairs of the Company will be managed by the manager of the Company and any successor thereto appointed by the Member, which manager may also be referred to as the Company’s president (the “Manager”). The initial Manager will be [Manager Name] , who will serve until the Manager’s death, removal by the Member (for any reason or no reason), or resignation. The Manager will have the right and authority to manage the affairs of the Company and make decisions and take action with respect thereto without further approval or consent of any kind by the Member. Except as otherwise required by this agreement and in lieu of any limitations set forth in [State Name] ’s laws for limited liability companies (the “Act”), the Manager will be solely responsible for and is hereby authorized to manage and operate the business of the Company. Except to the extent that the authority of the Manager is expressly limited by the Member, the vote, action, decision, or consent of the Manager will constitute a valid decision of the Manager and the Company.
The registered agent is responsible for managing vital paperwork on your company's behalf. While some LLC operating agreements feature this role, it's not entirely necessary; the reason being you typically denote this in your state-filed formation documents.
The Company’s registered agent in State is: Registered Agent Name , Address . The members may designate other registered agents or offices at any time in this state or, if necessary, in other states.
The "term of an LLC" is understood as your LLC's expected lifespan. It's the anticipated duration your LLC will exist, as laid out in your formation paperwork. While many entrepreneurs set up LLCs with the intention of creating a perpetual business, you also have the option to set a fixed period or dissolution date.
In many jurisdictions, LLCs are deemed "eternal" by default, translating to the LLC existing as long as the owner(s) desires. Most LLCs in Virginia opt for this perpetual lifespan.
The duration of the Company will be perpetual.
Capital contributions are the monetary resources, property, or services contributed to your LLC to ignite its functioning. Frame it as your initial investment to set your business operations in motion. For a single-member LLC, capital contributions stem from you – the sole owner, giving you the autonomy to determine how much cash flow or assets you wish to invest.
It's vital you adequately record these capital contributions. This practice constitutes a lucid view of your business's financial framework and proves handy for taxation compliance.
The Member’s capital contribution(s) to the capital of the Company for the Member’s membership interest in the Company will be reflected on the books and records of the Company.
The members have made or shall make the contributions of cash, property or services to the LLC as set forth on Exhibit A attached
Indemnification provisions in an LLC's Operating Agreement function as a safety cushion, shielding the LLC's members from particular expenses associated with legal complications arising from their LLC-related duties. Essentially, the LLC agrees to bear any legal charges or damages, should a member face litigation concerning their obligations for the LLC.
This agreement should unambiguously stipulate when and in which situations the LLC will extend this safeguard, along with any limitations to this provision. Traditionally, indemnification does not extend to deliberate misconduct or severe negligence. Customizing these terms to your LLC's specific hazards is paramount to ensuring suitable protection.
The Member, the Manager, the officers, and the organizer of the Company and their respective affiliates, stockholders, members, managers, directors, officers, partners, employees, agents, trustees, and representatives (individually, an “Indemnitee”) will be indemnified by the Company against any and all losses, claims, damages, liabilities, expenses (including legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits, or proceedings, civil, criminal, administrative, or investigative, in which the Indemnitee may be involved, or threatened to be involved, as a party or otherwise by reason of the Indemnitee’s status as any of the foregoing, which relates to or arises out of the Company or its assets, business, or affairs, if in each of the foregoing cases (A) the Indemnitee acted in good faith and in a manner the Indemnitee believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful, and (B) the Indemnitee’s conduct did not constitute gross negligence or willful or wanton misconduct. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, will not, of itself, create a presumption that the Indemnitee acted in a manner contrary to that specified in clause (A) or (B) above. Any indemnification under this section 5 will be made only out of the assets of the Company, and the Member will not have any personal liability on account thereof.
A Virginia LLC can adopt one of four tax classifications: sole proprietorship, partnership, S Corporation, or C Corporation. Your LLC's precise taxation method hinges on the membership count and the tax status your business elects with the IRS.
It's beneficial to have sections addressing tax status in your LLC's operating agreement. These parts discuss your adopted tax status, the process to alter it, and the conduct of tax returns and allocations (as necessary). Giving your LLC a clear strategy to handle business finances, including profits, losses, dividends, and taxes, is the focus. The crux here is to deliver a comprehensive plan for managing any tax-related issues that could surface in your business operations.
The Company will be disregarded for federal and state income tax purposes. The admission of one or more additional members, however, will cause the Company to be recognized for tax purposes, and to be taxed, as a partnership.
The Member acknowledges that the Company has elected to be taxed as a corporation for federal tax purposes pursuant to the regulations currently in effect under Section 7701 of the Code, and to be taxed as an electing small business corporation under the provisions of Subchapter S of the Code. Notwithstanding such tax treatment, the Member acknowledges and agrees that the Company will be a limited liability company, for state law purposes, under the provisions of the Act, the Articles of Organization, and this operating agreement.
The Member acknowledges that the Company has filed or will timely file a Form 2553 (Election by a Small Business Corporation) with the Internal Revenue Service and that the election made pursuant to the filing is or will be in force and effect covering all periods since the date of this operating agreement. Except as otherwise provided in this operating agreement, during the term of this operating agreement and the continuation of the Company’s “S” corporation election under Section 1362 of the Internal Revenue Code, no Member shall take any action which would cause the revocation or termination of the Company’s “S” election (under Section 1362(a) of the Internal Revenue Code) and any attempt to take such an action will be null and void and without effect. Without limiting the foregoing, and notwithstanding any provision hereof to the contrary, any transfer or attempt to transfer any membership interest to any of the following will be null, void, and without effect:
(a) a person whose ownership thereof would cause the Company to have a number of Members and assignees of membership interests (shareholders of an “S” corporation) greater than the number permitted by Section 1361(b)(1)(A) of the Internal Revenue Code;
(b) an individual who is not a United States citizen or resident;
(c) a trust (or the trustee thereof) which fails to satisfy the requirements of Section 1361(c)(2)(A) or 1361(d) of the Internal Revenue Code;
(d) a corporation; and
(e)any other entity whose ownership would cause the termination or revocation of the Company’s tax status as an “S” corporation.
Your profit and loss distributions section specifies when and how your LLC will distribute the earnings it generates. For single-member LLCs, this isn't as critical. However, for multi-member entities, it's advisable to clearly outline when and how these distributions will transpire.
As the sole member of the LLC, the Member is entitled to all profits of the LLC and is responsible for all its losses. Profits and losses shall be determined annually and will be allocated to the Member's capital account. Distributions of cash or other assets will be made at such times and in such amounts as deemed appropriate by the Member.
Occasionally, you may need to change a term or condition in your LLC. When that moment arrives, you follow the process outlined in your LLC Amendment clause. For a single-member LLC, this process is generally straightforward. With multi-member LLCs, a bit more thought goes into this clause, considering important factors like required voting percentages to make amendments.
This agreement and the articles of organization of the Company may not be altered, modified, or changed, and no provision of this agreement may be waived, except by an amendment or waiver, as applicable, approved by the Member.
LLCs, by design, aren't generally required to adhere to corporate formalities the way corporations do. However, sometimes neglecting these formalities could jeopardize your liability protection. That's why it's good practice to include a formalities waiver clause in your operating agreement.
The failure of the Company or the Member to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this operating agreement or the laws in the state in which the Company is which govern limited liability companies will not be grounds for imposing personal liability on the Member for liabilities of the Company.
Every business owner should have a contingency plan for when things veer off course. A dissolution clause outlines how to wind up your LLC and appoints who retains control of the LLC upon your incapacitation or death.
Upon the occurrence of any event which terminates the continued membership of the Member in the Company, the Company will not be dissolved, and the business of the Company will continue. The Member hereby specifically consents to such continuation of the business of the Company upon any such event. The Member’s legal representative, assignee, or successor will automatically become an assignee of the Member’s interest and will automatically become a substitute Member in place of the withdrawn Member.
This is the date your operating agreement becomes officially active. Another way to look at it—it's the day your operating agreement goes live.
No, you don't need to! Unlike your Articles of Organization (or Certificate of Formation, depending on your home state), your operating agreement is an in-house document securely held within your company files. Just sign it and keep a copy where it will be readily accessible when needed.
Many solo entrepreneurs look forward to the day when their ventures expand beyond their sole management. Should that fantastic day dawn and you're prepared to introduce a new member to your LLC, you'll need to revise your paperwork in agreement with your new partner's considerations. Chances are you'll have to draft a new multi-member operating agreement, because the needs and structures of single and multi-member LLCs are considerably different.
These simplified guidelines empower you to navigate complex legal concepts seamlessly. Here's to journeying this entrepreneurial path, fortified with the knowledge you need!
