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Deciding to start your own Georgia limited liability company (LLC) is exciting, but it also has a few administrative hurdles. One of the most important documents for any LLC business owner to create is an Operating Agreement. This essential part of the startup provides specific details as to who owns the business and what their responsibilities are in that regard. An Operating Agreement likewise provides guidelines for how your new business should conduct day-to-day affairs. 

If you are thinking about launching an LLC in Georgia, it is wise to have your Operating Agreement drawn up before you begin filing other official paperwork during the LLC formation process. Read on to find out what to include in this crucial document.

What is a Georgia LLC Operating Agreement?

An Operating Agreement is a legally binding document that details specifics regarding who owns a business and how it is run. When establishing a Georgia LLC, an Operating Agreement represents an essential item on your to-do list. An Operating Agreement helps protect its owners from legal liability if the business is ever sued and brings a level of legitimization to the company as a whole.

A strong Operating Agreement will cover everything from profit distribution to what kind of capital contribution any interested party needs to produce to buy into your LLC. People who own your LLC are referred to as “members.” Once all members of your LLC have signed your Operating Agreement, it becomes a legally binding contract.

To create a Georgia LLC, the first step is to file the Articles of Organization with the Secretary of State’s Corporations Division. Georgia also requires the filing of a Transmittal Form. In your Articles of Organization, you will specify details, such as the official name of your new business and the contact details of your chosen registered agent. Even though the Georgia Secretary of State does not require you to file your Operating Agreement, not having one can be detrimental to your business.

In the simplest terms, your Operating Agreement controls nearly every facet of your company’s internal affairs, daily operations, processes for conducting business, and official ownership. Once this vital document is in place, business can be embarked on with greater ease and fewer disputes.

Why do I need an LLC Operating Agreement in Georgia?

The U.S. Small Business Administration (SBA) confirms that the LLC structure is ideal for entrepreneurs who are seeking “a business structure with more personal protection but less formality.” LLCs do not have to conform to the same strict reporting guidelines that can dictate other business models, such as corporations.

The placement of a strong Operating Agreement is fundamental to your LLC’s success. The Operating Agreement functions as a legally binding contract, showcasing the agreement of all members to abide by established codes of conduct. It also helps the members avoid in-fighting.

The following are a few of the recognizable advantages of having a Georgia LLC Operating Agreement:

• Legitimize your LLC: Formal business transactions will very often require the presentation of an Operating Agreement. You may find that banks or private investors ask to read it before determining whether to open a bank account for your business or make an investment. The Operating Agreement is a means for your business to be taken seriously in all collaborative or official matters.
• Clarify verbal agreements: While there can be no doubt that many successful businesses have risen out of days spent on the golf course or freely chatting with friends, verbal agreements tend to be worth about as much as the paper they are written on. Anything that is actually going to play a role in how your company is run needs to be written down in an official way. Having exact terms spelled out for everyone involved allows for greater rapport between you and your fellow members. Written consent also prevents harmful misunderstandings before they can damage your business.
• Avoid state interference: Georgia state law recognizes and, within reason, defers to the sovereignty of an LLC Operating Agreement. This means that problems arising within your company when you have an Operating Agreement are handled by virtue of what that document says first (again, within reason). By contrast, if you do not have an Operating Agreement, your company and any problems it may face will be handled by the generic rulebook governing all equivalent businesses. A fine example of how intrusive this can be is to examine how it can impact something as personal as profit distribution. If you do not have an Operating Agreement to specify how profits within your company are handled, the state of Georgia applies its default laws regarding that matter and splits profits equally among members.
• Take advantage of the flexibility an LLC offers: The massive popularity of LLCs as a business structure derives in large part from the fact that they are immensely flexible. An Operating Agreement is a tool through which you can maximize that built-in flexibility to your ultimate benefit. The more details you can include in your Operating Agreement, the more power you have over the way that your company is run.
• Additional protection for personal assets: An operating agreement also serves an important legal purpose by further distinguishing between the LLC and its members in the eyes of the courts. The LLC structure alone is supposed to establish that the LLC is a business entity legally apart from the members. But if someone takes you to court to try to “pierce the corporate veil” by claiming that you are indistinguishable from your business in order to go after your personal assets (your house, car, savings, etc.), having an operating agreement in place helps further demonstrate to the courts that you and the LLC are indeed separate entities.

What do I include in my Georgia LLC Operating Agreement?

Despite the necessity of an Operating Agreement for every Georgia LLC, Operating Agreements vary widely. It is wise to get ideas about what to include in your Operating Agreement from companies that you admire, but ultimately, your Operating Agreement should be specific to your business. 

Tailor your Operating Agreement with your company’s features of management, operations, and membership in mind. That being said, there are some integral pieces of information that most LLCs will benefit from having in their Operating Agreement. The following list offers details on those items.

You may include the following information in your Georgia Operating Agreement:

1. LLC Name

Although this step may seem obvious, its importance cannot be overstated. Your Operating Agreement needs to be precise as to what business it pertains to. This will require you to include the full, legal business name under which you registered your company with the Secretary of State. This name of the company should match what you have on file in your Articles of Organization, down to the letter, and should not reflect any “doing business as” (DBA) names you may have also acquired.

Name availability standards in Georgia are highly specific. You will want to be sure that your Operating Agreement does not fail to include whichever variation of the required “Limited Liability Company” designator (“LLC,” “L.C.,” etc.) you have chosen for your business. The main point is to make sure that it appears the same on both your Articles of Organization and Operating Agreement.

2. Ownership

Your Georgia LLC Operating Agreement must clearly identify all official owners listed on your Articles of Organization. The names, addresses, and appropriate business titles of each of these members must be included, as should each member’s “degree of ownership.” A degree of ownership refers to the actual percentage value of the company that each member owns.

Most of the time, ownership percentages are written in such a way to reflect each member’s capital investment in the business. Let’s say that one person makes an initial investment of $1,000, and a second person makes an initial investment of $4,000. The majority owner would be reflected in the Operating Agreement as owning 80% of the business, and the minority owner would own 20%.

However, ownership percentage does not have to be determined by capital contributions. You can use any metric you like, as long as all members are in agreement.

3. Management Structure

An LLC can approach the daily management of operations in one of two primary ways. It can be set up to be managed by the members themselves or via a manager (or a group of managers). In a “member-managed” setup, the owners of the LLC are the active practitioners behind running the day-to-day business. In a “manager-managed” setup, members enlist a designated manager to handle daily operations in their stead.

Your Georgia LLC Operating Agreement should clarify which management structure your company plans to utilize and any particular rules/scenarios in which that structure might change.

4. Duties of Members and Managers

Managers and members will have obligations to the LLC that need to be spelled out in the Operating Agreement. Specific details as to the involvement level and duties of each member need to be included. Not only does this help your company run smoothly, but it also helps prevent arguments or confusion among your LLC members.

Examples of items that might befall the duties of a manager would be things like hiring and termination. Member responsibilities could be anything from attendance at quarterly meetings to reviewing business reports or voting on proposals. Although amendments can be made later, make every effort to place as much preliminary detail into this section of your Operating Agreement as possible from the start. This way, you do not have to worry about internal problems arising among members or managers who are unclear about their roles.

5. Voting Rights and Responsibilities

As voting power carries one of the most significant responsibilities any member can hold, your Operating Agreement needs to be extremely clear on how voting takes place for your LLC. Votes will influence everything from new members to your company’s collaborations with other businesses. Be specific in your Operating Agreement about how much voting power each member has.

It is common to have your company’s voting structure mirror that of its membership structure. That is to say if a single member owns 60% of the business, and another member owns just 15%, the majority owner would enjoy more voting power. However, you can set up the voting system however you and the other members like.

6. Distributions

How the distribution of profits will take place among members should appear in your Georgia LLC Operating Agreement. Will profits be distributed in alignment with members’ ownership percentages or by some other structure? Also, make sure to note when and by what method profits will be distributed. 

As money can be a subject that easily causes friction between members, making clear pronouncements in the Operating Agreement about how the company’s money will be handled is essential.

7. Holding Meetings

While corporations face legal requirements when it comes to regular shareholder meetings, LLCs are not subject to the same rules. This means that your Operating Agreement needs to reflect on how often meetings will take place. Having members and managers meet regularly to review business updates keeps everyone in the loop and connected over the goals of the company. Meetings also represent a scheduled opportunity to conduct official activities, such as voting.

Making sure to include details about regularly scheduled meetings in your Operating Agreement helps you avoid stress and conflict later. This step allows every member to know upfront that meetings are an established obligation they owe the company. Placing this requirement in the Operating Agreement saves you from having to persuade members to attend these meetings in the future.

8. Buyout and Buy-Sell Rules

Change is the only constant in business and life, so your Operating Agreement needs to have measures built-in for when members come and go. Do new members need to make a capital investment to join your LLC, or can they join some other way? Who needs to vote on a new member’s acceptance or rejection?

By the same token, the Operating Agreement needs to address what should happen to any given member’s ownership percentage when they leave the LLC. Can their portion of the company be transferred to a third party of their choosing? For instance, your Operating Agreement might require that existing members be given the first opportunity to buy the departing member’s ownership percentage before it’s offered it to an outside party.

9. Succession Planning

Succession planning is the crucial step of laying out a framework for what happens to the LLC when founding members retire or pass away. A strong Georgia LLC Operating Agreement should give clarity on whether membership percentages can be left to anyone that the member specifies or if they go by priority claim to the existing members.

10. Dissolution

Although it seems unlikely at the outset, there may come a time when all of your LLC’s members decide they want to pursue other interests. The Operating Agreement for your company should include details about dissolution. 

Specifically, your Operating Agreement needs to make clear whether all members have to unanimously agree on this step and what the process for winding down the business will look like. In Georgia, dissolution will require the official filing of a Certificate of Termination.

11. Modifications to the Operating Agreement

Remember that, as profoundly specific and binding as it may be, your Operating Agreement can also always be changed. This piece of paperwork should be considered a living document within your company. You can update, amend, and even completely alter the Operating Agreement as your business grows and your needs change. With that in mind, your Operating Agreement needs to offer guidelines on how amendments are to be made.

For instance, the Operating Agreement should require that members vote on any proposed future changes. Will this require a unanimous vote, or can a majority vote incite changes to your LLC? One of the most key items to include is the requirement that all members sign off on new changes to the Operating Agreement. Only upon member signature do those changes become legally binding.

12. Single-Member LLC Statute

If you are the sole owner of a single-member LLC, you may wonder how many of these Operating Agreement features pertain to you. While it’s true that points relevant to meetings and voting rights will be largely irrelevant to your business experience, an Operating Agreement is decidedly not.

Single-member LLC owners benefit from Operating Agreements because banks and investors will likely want to see them. As mentioned above, having the agreement in place adds an additional layer of legal protection for your personal assets in the event of a lawsuit. Including a single-member LLC statute in your Operating Agreement asserts your rights as the sole owner and decision-maker for your business.

13. Severability Provision

A severability provision is a clause that specifies the validity of your Operating Agreement as a whole, even if single aspects of the document are found to be invalid. Basically, the severability provision states that one invalid point in this contract does not invalidate all of the other points within it. 

Updating and Revising Your Georgia LLC Operating Agreement

Business owners are responsible for keeping all paperwork relevant to their companies up to date and accurate. This will, of course, include your Operating Agreement. As stated, the Operating Agreement is a living document that will require continuous attention to correctly reflect your LLC’s core principles. It is advisable to schedule a review of your Operating Agreement at least once per year with all members present.

Annual meetings can offer an official time to review the Operating Agreement with the company’s members. You will want to go over every point within the document and ensure that the provisions they contain still align with how your LLC is actually running. For example, if a need for changes to the management structure has been noticed in daily operations, reviewing the Operating Agreement gives everyone a formal chance to discuss such matters.

Examples of other changes that might need to be routinely updated include aspects pertaining to profit distribution and the introduction of new members. Any time a functional or financial change occurs within your business, that change needs to be directly reflected in your Operating Agreement. Once the needed changes have been determined by all interested parties, you can officially change your Georgia Operating Agreement in just three easy steps:

1. Defer to the established rules in the Operating Agreement about how changes can be made. A vote will most likely be necessary.
2. Place all agreed-upon changes in writing into the Operating Agreement.
3. Have all members sign off on these new changes within the Operating Agreement.

Some changes that you implement to your Georgia LLC Operating Agreement may require you to notify the Secretary of State. Check back with your original Articles of Organization to find out whether any details have been altered. For instance, if your Articles of Organization do not reflect the inclusion of two new members, you will need to amend that information with the state government. 
Formally completing an amendment to your Operating Agreement in Georgia requires the filing of the Articles of Amendment. There is a $20 filing fee if completed online and a $30 filing fee if submitted in paper format.

Partner with ZenBusiness for Professional Assistance

By this point in reading, you may think of hiding under a rock from all of these seemingly daunting requirements. No need to worry. You can call on ZenBusiness for a template to get you started when creating this critical document. 

ZenBusiness’s customizable Operating Agreement template helps you draw up an Operating Agreement that works for the specific needs of your company and covers the basic requirements mentioned here. Additionally, once you have your Operating Agreement created, it is wise to have a lawyer review it so that you can rest easy knowing all relevant points have been addressed.