Michigan LLC Operating Agreement (Member-managed)
Michigan LLC Operating Agreement (Manager-managed)
What is a Michigan LLC Operating Agreement?
Single-Member LLCs and Multi-Member LLCs should draft an Operating Agreement, keep it with their business records, and give a copy to all Members.
Your Operating Agreement will include basic information about your Limited Liability Company. Some of the information will be the same as what is listed in your Michigan LLC Articles of Organization. Operating Agreements should include:
- LLC Name
- LLC effective date
- Michigan Registered Agent
- purpose of your LLC
- duration of your LLC
- and how your LLC will be taxed
LLC Ownership (“LLC Membership Interest”)
Your Operating Agreement will list all the LLC Members and how much of the LLC they each own.
How much of the LLC someone owns is called their “LLC Membership Interest”.
LLC Membership Interest is most often expressed as a percentage (like 5%, 50%, 100%, etc.).
Initial Capital Contributions (putting money into your LLC)
After your LLC is approved, you should open an LLC bank account and put money into that account.
Each of the LLC Members makes an initial capital contribution. Capital contribution simply means a deposit of money into the LLC bank account.
You will list the initial capital contributions in your LLC’s Operating Agreement.
Pro tip: If you complete your Operating Agreement before you have opened an LLC bank account, just enter the amount the Members plan to deposit. If the amount of your deposit changes, it’s okay to edit your Operating Agreement later with the actual amounts.
Statement about taxes
You will list how your LLC will be taxed in your Operating Agreement. There are four common ways an LLC can be taxed:
- LLC taxed as a Sole Proprietorship
- LLC taxed as a Partnership
- LLC taxed as an S-Corporation
- LLC taxed as a C-Corporation
Voting Rights of LLC Members
The rules of membership voting will be spelled out in your Michigan LLC’s Operating Agreement.
If you use the Member-Managed Operating Agreement, the voting powers are proportionate to the LLC Membership Interest.
If you use the Manager-Managed Operating Agreement, the voting powers are also proportionate to the LLC Membership Interest. Then the Members vote to elect a Manager or Managers. The Manager(s) then has authority to make certain decisions on behalf of the LLC (without needing a vote by the Members).
However, certain things, like adding or removing an LLC Member, require a vote of the Members (and the Manager has no say).
Make sure all LLC Members have a copy
Once you finalize your Operating Agreement, make sure all Members have a copy.
And keep a copy of the Operating Agreement with your LLC business records.
Operating Agreement FAQs
It’s best to have an Operating Agreement, even if you are the only Member of your Michigan LLC (a Single-Member LLC).
If you go to court, an Operating Agreement helps prove that your Single-Member LLC is being run as a separate legal entity.
It’s best to have an Operating Agreement, especially for a Multi-Member LLC. The Operating Agreement will spell out ownership percentages, profit distribution, and management responsibilities.
If you go to court, an Operating Agreement helps prove that your Mutli-Member LLC is being run as a separate legal entity.
While it’s not a state requirement in Michigan, we strongly recommend having an Operating Agreement for your LLC.
Additionally, banks and other organizations may need to see a copy of your Operating Agreement in order to do business with them.
No, you don’t have to send your Operating Agreement to the Secretary of State, the Michigan Department of Licensing and Regulatory Affairs (LARA), or any other government agency.
Operating Agreements are “internal documents”. Meaning, the Members just need to keep a copy with their business records.
The Operating Agreement is a legally binding document upon the LLC Members because of the Members’ signatures. It doesn’t need a government stamp of approval.
However, in the future, if you were involved in a lawsuit or an audit, a court or government agency might ask to see a copy of your Operating Agreement.
Additionally, you may also need to show your Michigan LLC Operating Agreement to:
- a bank when you open a business bank account
- a lender if you apply for a loan for the LLC
- a title company if your LLC is buying real estate
No, your Operating Agreement doesn’t need to be notarized. Each Member just needs to sign the Operating Agreement.
Once you (and the other LLC Members, if applicable) sign the Operating Agreement, then it becomes a legal document.
Next Step: EIN Number from IRS
After you’ve completed and signed your Michigan Operating Agreement, you can then proceed to the next Lesson: Michigan LLC EIN Number.
IRS: Paying Yourself
Michigan LLC Act: Article 3 (member, contributions and distributions)
Michigan LLC Act: Article 4 (managers)
Michigan Secretary of State: Limited Liability Companies
Michigan Secretary of State: Limited Liability Company Definition