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KEYTLaw Operating Agreement Preparation Service

All Documents are Attorney Prepared - not Paralegal or Document Preparer Prepared

by Richard Keyt, Arizona business attorney

If you form your own LLC, your company should also have an Operating Agreement signed by all of the members.  Here's the litmus test for determining if your company needs an Operating Agreement:  How can a third party like a bank or title insurance company determine the identity of the members of your company and their percentage ownership of the company? Without a written Operating Agreement, a bank or title insurance company will not accept the word of a member as to who the owners are and how much they own. 

See Why Most Multi-Member LLCs Need a Comprehensive Operating Agreement.  

Without a good written Operating Agreement how can you prove to a court exactly how much of your company you own?  The single most important reason to have a written Operating Agreement is so that you and the other members can prove who owns your company and how much each member owns.  In 2003, the members of an LLC I formed in 1994 found themselves in Maricopa County Superior Court litigating over, among other things, exactly who the owners were and what percentage of the company they owned.  Although I prepared an Operating Agreement for them in 1994, they never signed it.

I had a client ask me to review a sample Operating Agreement the company found on the internet.  The members signed the agreement and were involved in a nasty dispute.  Unfortunately for the company and its members, the sample Operating Agreement stopped in the middle of the agreement and lacked all the exhibits it referred to.  Because the members had never seen an Operating Agreement before, they did not realize they signed a partial and highly defective document.

Let KEYTLaw prepare your company's Operating Agreement.  Don't risk a future expensive dispute among owners by operating your company without a written agreement between the members that covers basic rights and obligations of the members. 

Because the Operating Agreement is the most important agreement among the members of a multi-member LLCs, it should not be a fill-in-the-blanks form taken off the internet or from a commercial legal form software package or be a document prepared by anyone other than an experienced business and tax lawyer. 

KEYTLaw offers for sale two LLC Operating Agreements, a 30 page standard Operating Agreement and a 80 page comprehensive Operating Agreement with buy-sell provisions.  The 30 page standard agreement is sufficient for single member companies and husband and wife owned companies.  Members of multiple member owned companies, especially companies not owned entirely by one family, should purchase KEYTLaw's 80 page comprehensive Operating Agreement with buy-sell provisions, which is designed for the more complex scenarios that typically involve multi-member non-family owned LLCs.

Contents of KEYTLaw's 30 Page Operating Agreement

Every KEYTLaw prepared Operating Agreement contains the following provisions: 

1. names of the members,

2. percentage of the company owned by each member,

3. initial and future capital contributions, if any, required from each member,

4. limitations on withdrawal of capital contributions,

5. allocation of profits and losses among members,

6. powers of and limits on managers (for manager managed companies),

7. recordkeeping obligations and rights of members to inspect and obtain copies of records and financial information,

8. procedures applicable to calling meetings of members and voting on issues affecting the company and its management (such as the percentage of members needed to hold a valid meeting of members, how members can grant proxies to vote for them and how to approve action without a formal meeting of members),

9. restriction preventing members from unilaterally withdrawing from the company,

10. prohibition on admission of new members without the consent of existing members,

11. how to dissolve the company and liquidate its assets,

12. how to give legal notice to members, and

13. a disclaimer for a spouse to sign when the other spouse is to own his or her interest in the company as separate property

Separate Property v. Community Property Caution

If any member of your LLC intends to own his or her interest in the company as separate property, it is imperative for that member to obtain a written disclaimer of interest from his or her spouse to obtain clear title to the interest.  The spousal disclaimer is included in both of KEYTLaw's Operating Agreements.

Arizona is a community property state.  A married Arizona resident owns two types of property:  separate property and community property.  Separate property is property that is owned only by one spouse and in which the second spouse has no interest. Community property is property that is owned jointly by both spouses and in which they each own an undivided fifty percent interest. 

Arizona community property law provides that all property acquired by a spouse residing in Arizona during marriage is community property, except property acquired by gift or inheritance.  The legal significance of this fact is that if a married member (who resides in Arizona) of an Arizona LLC intends to own his or her interest in the company as separate property, the married member must obtain his or her spouse's signature on a disclaimer by which the other spouse acknowledges that the member owns the interest in the LLC as separate property.

Contents of KEYTLaw's 80 Page Comprehensive Operating Agreement with Buy-Sell Provisions

In addition to the provisions contained in the 30 page standard form Operating Agreement, KEYTLaw's 80 page comprehensive Operating Agreement with buy-sell provisions contains the following additional provisions:

1. remedies if a member defaults and fails to pay a required capital contribution (Option 1: other members can make up the difference by loaning funds to the company or the defaulting member with repayments charged to the defaulting member; or Option 2: other members can purchase the interest of the defaulting member),
2. loans by members to the company
3. capital accounts
4. ability to make special allocations of profits, loses and distributions, e.g., allocate profits to a member who contributed all the capital until the member gets all capital back before splitting the profits equally;
5. much more extensive limitations on manager's powers;
6. specific events that require the prior approval of a majority or super majority of the members or unanimous consent of all members,
7. prohibition on payment of compensation to a manager without members' approval,
8. indemnification of manager,
9. resignation and removal of managers and replacing a manager,
10. rights and obligations of members,
11. obligation to maintain confidentiality of company matters,
12. requirement that minority members agree to sell their interests if the majority desires to sell all of the company,
13. intellectual property created by members in connection with the business of the company belongs to the company (optional provision),
14. covenant not to compete (optional provision),
15. restrictions on transfer or encumbrance of membership interests,
16. right of first refusal to company and the other members if a member intends to transfer the member's interest in the company,
17. requirements for a transferee of a membership interest to become a member of the company, including the requirement the transferee sign the Operating Agreement,
18. rights of the company and members to purchase the interest of a member who defaults under any provision of the Operating Agreement or a debtor in bankruptcy,
19. right of the company to purchase the interest of a deceased member,
20. deferred payment terms on the purchase of a membership interest,
21. insurance clause that allows the company to purchase life insurance on the lives of members to fund the purchase of the interest of a deceased member,
22. sample promissory note for member loans and purchases of membership interests, and
23. sample membership pledge agreement to secure a member loan or note for the deferred balance owed from the purchase of a member's interest in the company.

See Headings of KEYTLaw's Comprehensive Operating Agreement to get an idea of the issues covered by our 80 page Operating Agreement with buy-sell provisions.

Our comprehensive Operating Agreement is not a form document grabbed from the internet or a form book.  It is the product of Richard Keyt's 25+ years of experience as a business lawyer attending seminars, reading treatises, drafting hundreds of partnership agreements and operating agreements, and advising partnerships and limited liability companies. 

Fees for KEYTLaw Prepared Operating Agreements

Don't operate your Arizona LLC without an Operating Agreement.  Let KEYTLaw prepare an Operating Agreement for your company and have piece of mind knowing that you will have the basic terms and conditions of membership set forth in a legally binding written agreement.

Operating Agreement Questionnaire

To order an Operating Agreement for your company now, click on the link below and answer the questions on the online form:

Click Here to Purchase Your Operating Agreement Now

For more information about Operating Agreements, see Richard Keyt's articles entitled "Arizona Limited Liability Company Operating Agreement FAQ or Why Most Multi-Member Arizona Limited Liability Companies Need a Comprehensive Operating Agreement."

About the Author

All Documents Attorney Prepared - not Paralegal or Document Preparer Prepared

To order an attorney prepared Operating Agreement for your AZ LLC, click on the OA Questionnaire link

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This page was last modified on April 10, 2008.

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