Pennsylvania Operating Agreement

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Pennsylvania LLC
Operating Agreement

Quick Start Guide
This Quick Start Guide is a brief overview of how to form an LLC in Pennsylvania.

Detailed Lessons:

 

Pennsylvania LLC Costs:
Pennsylvania state fee: $125

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Video Transcript:

The following information is provided for educational purposes only and in no way constitutes legal, tax, or financial advice. For legal, tax, or financial advice specific to your business needs, we encourage you to consult with a licensed attorney and/or CPA in your state. The following information is copyright protected. No part of this lesson may be redistributed, copied, modified or adapted without prior written consent of the author. An Operating Agreement is an agreement between the members of the LLC that sets forth how the LLC will be managed both financially and operationally. Unlike your LLC Formation Documents, the Operating Agreement does not need to be mailed in to the State. It is an “internal document”, meaning you’ll just need to keep a copy with your business records. The purpose of an Operating Agreement is to spell out who the members are and what percentage of the LLC they own (also known as their membership interest). It also defines how the LLC is managed, how taxes are paid, and how profits and losses are distributed amongst the members. You will find both the PDF and the Microsoft Word versions below this video in the download Section. You can print these out and fill them out by hand, or type directly in them with your computer (whatever is most convenient for you). We will show you how to complete your Operating Agreement regardless if you are a single-member LLC (with just 1 member) or if you are multi-member LLC (with 2 or more members). The Operating Agreement that is provided as a generic Operating Agreement that will work for the majority of businesses. If your business requires industry-specific management, complex ownership agreements, has multiple investors or a large amount of members, we recommend getting the help of an attorney. You can complete the Operating Agreement provided as a base for your initial conversation with your attorney. This may save you time and money. If you are single-member LLC or a family-owned LLC, this may be less of an issue for you (unless you have a crazy family)… then we recommend you seek legal advice to prepare this document. You may need to provide a copy of your Operating Agreement to: a lender if you are obtaining financing; a title company if you are purchasing real estate; accounting and tax professionals for financial assistance; lawyers for legal advice or potential investors or partners have an interest in your business. Also, if you find yourself a party to a legal action, the court will likely ask for a copy of your LLC’s Operating Agreement. This can help document to the court that you have a well-organized structure for handling issues that arise in relation to your LLC. One of the benefits of forming an LLC is the flexibility of managing your business. The Operating Agreement is a working document that is meant to be fluid and allow for changes as your business grows. If you make simple changes such as a change of address for a member, or you change your Registered Office or Registered Agent, open the original Operating Agreement, make the changes you need and then save the document as a new version. For complex changes to your LLC, for example 1 member purchases the interest of another member, or you decide to raise financing with investors, it is best to hire an attorney as this is not something we recommend you do yourself. If changes are made, you’ll need to print out the new Operating Agreement and have all the members sign. It is best practice to keep a copy of all previous versions on file in order to complete your Operating Agreement. In order to complete your Operating Agreement, you will need some basic information. It is easiest to grab a copy of your LLC Formation Documents as it already has most of the information you will need such as: the formation date of your LLC, the name and address of the Registered Office and Registered Agent, the general business purpose of the LLC, the members, percentages of ownership, and the names of the members and their addresses. We are now ready to fill out the Operating Agreement. You can download this document below the video. Let’s get started. Here we are in the Operating Agreement. Please note that I’m using Microsoft Word to edit this document. If you don’t have Microsoft Office, you can use similar and free software called Open Office, or you can use Google Docs. If you prefer to just print and fill out by hand, we’ve also included this document in PDF format. You can then open this document on your computer, print it, and then fill it out by hand using blue or black ink. Let’s get started. In Section 1, I’m going to list the name of the LLC, and the date in which I mailed in the LLC Formation Documents. Again, it’s easiest to reference your Formation Documents as most of the information can be found there. I’m going to now fill out Section 1. Alright, let’s move down to Section 2. Please note in this video example, I’m going to be filling out this Operating Agreement for a Texas LLC. This Operating Agreement will work for all 50 states, so no matter what state you’re forming your LLC in, everything for the most part is going to be pretty much the same. You’re just going to adapt it, change it, for your State. In Section 2 on the 1st line, I’m going to fill in the State in which the LLC was formed, and then I’m going to write the Effective Date. This is going to be the same date as in Paragraph 1. Let’s now go down to Section 4, where we’re going to list the Registered Office and Registered Agent. This will either be yourself, someone you know, or a Commercial Registered Agent. This information will be identical to the Registered Office and Registered Agent that you have listed in your LLC Formation Documents. In this example, we hired a Commercial Registered Agent. I’m now going to fill in Section 4. Don’t worry that in my example the address looks a little funny. Northwest Registered Agent is an approved Registered Agent within all 50 states, so their addresses are formatted a bit differently than we’re used to seeing. Let’s scroll down to Number5. Number5 is where we’re going to list the business purpose of the LLC. This can be a few words or a few sentences that describe the purpose of the LLC. Now many people do ask those questions of how specific they need to be, and if they mention something here, if they’re going to be pigeonholed and forced to do that forever. No you’re not. Remember, this is a fluid document and you can make changes, and it’s best to usually use something a little bit more generic here. This LLC is a marketing agency, so I’m going to list that in Section 5. Under Number 6, the duration of the LLC, you’re going to list “Perpetual”. “Perpetual” means that the LLC will be in existence, until the members decide to close (also known as “dissolve”) the LLC. All right, let’s scroll down and go to the next Section. We’re going to continue scrolling through Page 1, we’re going to go to Page 2, and we’re actually going to end up at the bottom of Page 2 underneath “Tax and Financial Provisions Number1” (the tax classification of the LLC). If you are single-member LLC, for tax purposes the IRS is going to tax your LLC just like a Sole Proprietorship. So in this case, if you’re a single-member LLC, we’re going to list “Sole Proprietorship”. Now, if you’re a multi-member LLC with 2 or more members, the IRS is going to tax your LLC just like it would tax a Partnership. So if you’re multi-member LLC, you’re not going to put the word “Sole Proprietorship”, you’re going to put “Partnership”. Let’s move forward. Here we are at the top of Page 3, Number2 (the “Tax Year and Accounting Method”). The tax year of this LLC shall be the “calendar year”. The LLC shall use the “cash method” of accounting. And that completes Number 2. Let’s go down further. Here we are in Section 4 (“Capital Provisions”). Under Number 1, we’re going to list the date in which all members made their contribution to the LLC. This will most likely be the date that the LLC was formed, or that it became effective. Feel free to use the same date that you used at the top of Page 1 under Number 1. Let’s move on and list the names, addresses, contribution, and percentage of interest in the LLC for all the LLC’s members). For this example, this is going to be a multi-member LLC owned by a husband and wife. If you are a single-member LLC, you’re just going to list your name and your address, the contribution, and then under “Percent Interest”, you’re going to put a hundred percent. In this document, we have 3 areas where you can list the names and addresses of the LLC’s members. If you have more than 3 members feel free to add additional lines below. For our example, I’m going to put the name and address of a husband-and-wife-owned LLC where each member owns 50 percent interest. If you or the members of the LLC did not make an actual cash contribution, feel free to simply lists $100. Let’s move forward. Let’s scroll down to Page 4 where we’re going to go to Number 8 (“Allocation and Distribution of Cash”). In this blank line, you’re simply going to put “all of the members”. Under Section 5 (“Membership, Withdrawal and Transfer Provisions”), in this blank line you’re going to put “60” for 60 days. 60 days is the amount of days that we recommend. However, if your business needs more or less time, this is flexible, so feel free to make those adjustments as needed. Let’s scroll down to Page 5. Underneath Section 6 (“Dissolution Provisions”), where it says “except that within blank”, I’m going to list “60 days”. Again, this is flexible, so feel free to adjust for your business if needed. All right, let’s move forward. We’re nearly complete with the Operating Agreement. We’re going to scroll through Page 5 and go to Page 6, and only thing that we have left to do is list the members, sign, and date the Operating Agreement. If you just have 1 member, you’re simply going to put the date that you’re signing this document. After you print it out, you’ll sign on the 2nd line, and then you’re going to put your name on the 3rd line. Again for this example, this is a multi-member husband-and-wife LLC, so I’m going fill out this Section real quick. So in my example, I’ve listed “1/1/2014, wrote “John Doe”, and the same thing on Page 7 (“1/1/2014 and Mary Doe”). All they would need to do is simply print this document, and sign on both of those lines. In this sample document, we have 3 areas for members. If you’re not using any signature blocks, feel free to just simply put an “X” through them if you’re filling this document out by hand, or if you’re on the computer you can simply highlight and delete them. Also, if you have more than 3 members, feel free to add additional lines and signature blocks below. Please note: the LLC Operating Agreement does not need to be notarized. You’ll simply print out the document, have all members sign, and then you’ll just keep a copy with your business records. And this completes the LLC Operating Agreement.

Downloads

Both links below are to the same document. The 1st is a Word document. The 2nd is a PDF.

Operating Agreement (Word)

Operating Agreement (PDF)

Next Step

After you’ve completed and signed your LLC’s Operating Agreement, you can then proceed to Lesson 4: Tax ID Number (EIN).

Matt Horwitz
Founder & Educator, LLC University®
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! LLC University® teaches people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your business journey.
Disclaimer: Nothing on this page shall be interpreted as legal or tax advice. Rules and regulations vary by location. They also change over time and are specific to your situation. Furthermore, this comment section is provided so people can share their thoughts and experience. Please consult a licensed professional if you have legal or tax questions.

16 Comments

  1. Kanisha August 27, 2018

    Thank you so much for developing such a thorough and easy to understand resource!

    reply
    • Matt Horwitz October 10, 2018

      Thank you Kanisha! You’re very welcome!

      reply
  2. Yasmin George October 9, 2018

    This site is SO unbelievably helpful! Thank you!!!!

    reply
    • Matt Horwitz October 25, 2018

      Thank you for the awesome compliment Yasmin!! So glad we could help. You’re very welcome!

      reply
  3. Beth December 31, 2019

    Thank Matt, your site has been invaluable. My husband submitted required docs to PA to establish a single member LLC for a real estate investment he owns (note we live in AZ). Also obtained EIN as sole member We are using NW Registered Agent. Because I am on the loan (and have been for years), the bank is now requiring that I be included as a 25% member in the LLC in order to transfer loan to LLC name. I have done a lot of research and seen the term husband and wife LLC used, including in your presentations. Only my husband’s name is on the Initial Resolutions submitted to the state and the PA Certificate of Organization does not list either of our names nor does it specify the type of LLC. We are thinking we can just include my name and % interest in the Operating Agreement as you did in the husband and wife example you used here. Does that sound right or do you think we need to amend something with the state? We plan to file taxes on schedule E for both Federal & PA as we have always done when he operated as a sole proprietorship.
    Thanks for feedback.

    reply
    • Matt Horwitz December 31, 2019

      Hi Beth, the Pennsylvania LLC Certificate of Organization doesn’t list Members, so you don’t need to amend that. And the Initial Resolution is just that… the Initial Resolution. It’s doesn’t get amended. And it’s not set in stone. Meaning, it can be overridden. Here’s the overview to becoming a Member of your husband’s LLC. First, your husband needs to transfer/assign 25% of his 100% LLC membership interest to you. This is usually done via an Assignment of LLC Membership Interest. Then you’ll want to amend the LLC’s Operating Agreement. Then you need to update the IRS since the tax classification of the LLC will be changing. The LLC has been taxed as a Sole Proprietorship. After you become a Member, it will need to be taxed as a Partnership. This tax classification change is done via IRS Form 8832. You’ll also need to update the Pennsylvania Department of Revenue and the bank to add yourself as a signer. Hope that helps!

      reply
      • Beth January 1, 2020

        Thanks for quick response, and happy new year. To clarify, the LLC is brand new for 1/1/2020. Property was previously managed as a sole proprietorship so we are not making any change with feds or state other than establishing the new LLC this year. First tax filing for LLC will not be until April 2021. Seems we can just modify the articles of organization we just created and leave everything else the same. Just wondering if we need a new EIN documented as a partnership versus single member. Also still confused as to whether we qualify for qualified joint venture LLC since we live in Arizona but established LLC in PA where the business is located. Somethings I’ve read make it sound like a husband and wife can file taxes as a disregarded entity, which is our preference.

        reply
        • Matt Horwitz January 1, 2020

          Hi Beth, Happy 2020! Again, there shouldn’t be a need to amend the PA Certificate of Organization as there is no place to list Members (owners). You’ll need to speak with a qualified accountant regarding the potential for a Qualified Joint Venture LLC. We’re not sure where the property (the PA LLC membership interest) is considered to be located and whether or not you can hold that property together as husband and wife or you need to hold it separately. If a Qualified Joint Venture is allowed, then you can mail a letter to the IRS requesting to be taxed as a Qualified Joint Venture. Alternatively, you can cancel the EIN and get a new one as a QJV. If the QJV isn’t allowed, then you can either file Form 8832 to change to Partnership taxation or cancel the current EIN and get a new one where “2” Members is entered (in the EIN Online Application), which defaults the LLC to Partnership taxation. Hope that helps.

          reply
  4. Beth January 4, 2020

    Ask again Matt. Read some comments on your site where a person had a problem applying for a new EIN using the same LLC name (had to wait until the old number was canceled to get a new one). To avoid that and any delay implementing our newly established LLC do you think it would be better to just submit form 8832 to change from single-member to partnership so we can proceed with deed change and opening bank account using the current EIN. Form 8832 is a little confusing but seems it would be more efficient for us to keep the same EIN. As a reminder this is a brand new LLC effective one 1/1/20.

    Thanks

    reply
    • Matt Horwitz January 4, 2020

      Hi Beth, if partnership taxation is the route you are going, then yes, you can file Form 8832. You’ll list the LLC name, EIN, and address at the top. Under “Check if”, you’d leave that section blank. 1 would be B. 2a would be No. Skip 2b. 3 would be Yes. Skip 4. Skip 5. 6 would be B. Skip 7. 8 would be 1/1/20. 9 and 10 could be either you or your husband. You’d both sign and each use the title “Partner” (the IRS prefers that title instead of “Member” for Multi-Member LLCs). Part II Late Election Relief can be skipped. Hope that helps!

      reply
      • Beth January 6, 2020

        Matt I am so grateful for your assistance but I have to ask regarding your response above on form 8832. Thus is a new LLC effective 1/1/20 but we did already request and obtain an EIN at the end of December (which is why we are submitting the form) should we be selecting Yes for 2A and Yes for 2B rather than No for 2A as you advised? I feel like we did previously file an entity election that had an effective date within the last 60 months and we are now requesting to change the entity type from single-member to partnership. And for 2B it seems that our prior election was an initial classification by a newly formed entity that was effective on the date of formation (1/1/20).

        Thanks again

        reply
        • Matt Horwitz January 7, 2020

          Hi Beth, great question. That language on 2A and 2B can be quite confusing. Applying for an EIN, either by mail, fax, or online is not considered an “entity election” (question 2A) or an “initial classification election” (question 2B). Rather, it is considered “establishing” the EIN. The only two forms that can make an “entity election”, “classification election” or “initial classification election” are IRS Form 8832 and IRS Form 2553. So because your LLC has never filed an 8832 or 2553, 2A would be No and you would skip 2B. Hope that helps clarify this confusing form ;)

          reply
  5. Beth January 4, 2020

    Matt thank you again. Hopefully this is my last question. We live in Arizona and use that as our mailing address for EIN but the physical address for business & registered agent (NW) is in Pennsylvania. Do I send our form to the treasury for PA or the treasury for AZ. Through this whole process I have struggled with knowing which address to use where.

    With gratitude for the amazing service you & your website provide!

    Beth

    reply
    • Matt Horwitz January 5, 2020

      Hi Beth, you’ve very welcome. You can send Form 8832 to the address for AZ. Honestly, it would get processed either place you sent it. It’s just faster to send to the address specific for AZ.

      reply
  6. Brad January 8, 2020

    Hello and thank you for all of the helpful information.

    I am about to file for a mmllc in PA. One of the potential members has been and is currently working abroad in Singapore. He is a legal US citizen but has been working out of the country for 4 years. I would like to make sure that we are able to move forward with him listed as a partner, despite his current foreign address and location. Thanks in advance for your help!

    -Brad

    reply
    • Matt Horwitz January 9, 2020

      Hi Brad, you’re very welcome. When forming a Pennsylvania LLC, there are no citizenship or residency requirements for LLC Members (owners), so yes, you can both be Members in your Pennsylvania LLC. His foreign address would really only appear in a private document; your PA LLC Operating Agreement. Hope that helps.

      reply

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