An Arkansas LLC Operating Agreement, in a nutshell, acts as your custom plan for your LLC, offering an easily digestible structure for its functioning. Picture it as if we're having a friendly coffee chat, and I'm handing you your specialized playbook that lays out the rules for managing your business, covering aspects like ownership shares, the steps for making decisions, and strategies for future succession.
Under Arkansas's LLC regulations, this agreement lets you spell out key components, such as the positions of members, the approach to decision-making, and methods for settling disagreements. In doing so, it serves as a clear roadmap to navigate and prevent potential miscommunications that may arise throughout your entrepreneurial adventure.
No, it's not legally required in Arkansas under § 4-38-105. 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 Arkansas operating agreements, including:
Here are some key components that are typically included in a Arkansas LLC operating agreement:
This guide will break down common provisions included in the agreement, along with sample language for each to assist you on your path.
You've already named your LLC by the time you register your LLC formation papers with the state. But it's equally important to detail the purpose of your LLC. A broad statement is fine because it leaves room for future diversification without incurring the need for re-registration.
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 provision determines if members or a designated manager will manage your LLC. It also outlines the rights and responsibilities of each member, including their capital contributions, voting rights, and the governing structure. Even for a solo owner, this provision is key to affirming your single-member LLC.
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's role is to receive and manage vital paperwork on behalf of your LLC. Some operating agreements may require this detail, but it's not obligatory since it's already registered with the state on your 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.
Just as humans have a lifespan, so do LLCs. This is the planned duration for your LLC, as defined in your formation papers. Many business owners set up an LLC to operate indefinitely, but there's also the option to specify a fixed term or end date.
The duration of the Company will be perpetual.
Capital contributions refer to the initial investment made to get your LLC off the ground. It can include cash, property, or services. For single-member LLCs, the sole owner may make this contribution, giving you flexibility in deciding what to invest.
Keeping records of these contributions is crucial. It ensures a clear financial picture of your LLC and provides necessary tax-related information.
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
The Indemnification clause in an LLC’s operating agreement serves to protect the LLC's members from certain legal expenses that could arise from their service to the company. In short, if a member faces a lawsuit related to their duties within the LLC, the LLC would cover the legal fees or damages.
The agreement should clearly define under what conditions and when these protective measures apply. Generally, indemnification doesn't cover intentional misconduct or significant negligence. Tailoring these terms to suit your unique business situation ensures appropriate incident coverage.
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.
Your Arkansas LLC can choose from one of four tax classifications: a sole proprietorship, partnership, S corporation, or C corporation. The number of members and the tax status you select with the IRS dictates your LLC's tax classification.
We'd recommend including a tax-status-related clause in your LLC operating agreement. This clause would cover your current tax status, how you can alter it, and how to handle tax returns and allocations (if applicable). It's like a road map to navigate tax-related matters and protect your LLC's financial integrity relating to profits, losses, distributions, and taxes.
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 operating agreement outlines how you'll allocate profits and losses. With a single-member LLC, this is relatively clear-cut. However, for multi-member LLCs, the distribution process should be meticulously detailed, specifying when and how distributions will take place.
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.
Business changes often come with necessary amendments. If there's a need to modify any terms of your LLC, you follow the amendment procedure laid out in your LLC operating agreement. While this is simpler for single-member LLCs, multi-member LLCs will need to consider voting percentages and the requirements to alter the operating agreement.
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.
Unlike corporations, LLCs are generally not required to adhere to corporate formalities. However, in certain situations, neglecting such formalities could potentially pierce your LLC veil. Therefore, it's worthwhile including a waiver of all formalities 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.
Consider this the 'exit strategy' for your LLC. This clause provides guidelines on how to properly close down your LLC and chooses who will maintain control in the event of your unexpected departure.
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 marks the date when your operating agreement officially comes into effect. You can think of this as the inauguration date of your agreement.
No, not at all! Unlike your Articles of Organization, your operating agreement is an internal document. Simply sign it, keep a copy on file, and ensure it is accessible when needed.
Sometimes the path of entrepreneurship leads to growth, and you may find yourself needing to add another member to your LLC. If this happens, you'll redo the paperwork following the terms agreed with the new member. In most cases, you would need a brand new operating agreement, as multi-member LLC operating agreements differ considerably from those of single-member LLCs.
