LLC Custom Operating Agreement  

An LLC operating agreement allows you to structure your financial and working relationships with the other members in a way that suits your business. In your operating agreement, you and the other members establish percentage of ownership in the LLC, share of profits (or losses), rights and responsibilities, and provisions for the change or transfer of membership.

While Nevada does not legally require your LLC to have an operating agreement, it's foolish to operate an LLC without one, even if you're the sole member of the LLC: An operating agreement guards your limited liability status, heading off financial and management misunderstandings, and making sure your business is governed by your own rules -- not default rules set out in the Nevada Revised Statutes.

The main reason the members should adopt an operating agreement is as simple as it is important: It helps ensure that courts will respect your limited personal liability. This is particularly key in a one-person LLC where, without the formality of an agreement, the LLC will look a lot like a sole proprietorship. Having a formal written operating agreement will lend credibility to your LLC's separate existence.

There's a host of issues you must be covered in the operating agreement including:

In other states creditors have become creative and tried actions such as foreclosure, in an attempt to control the management of the LLC and seize LLC assets. Nevada laws eliminate any "creditor creativity". Nevada has the toughest laws in the country with regard to creditors. In Nevada, per NRS 86.401 a charging order against a membership interest in an LLC is the EXCLUSIVE remedy by which a judgment creditor of a member may satisfy a judgment.

Recent developments in Nevada case law have given Nevada Judges the opportunity to confirm the intention of the legislators when they passed the toughest laws in the country with regard to creditors:

In Paladin Commerce Center, LLC, Debtor, General Electric Credit Equities, Inc. v. Barry Thalden, a Nevada Bankruptcy Judge held that despite the fact that a creditor (GE Credit) had obtained 100% of the membership interest of a Nevada LLC (the members pledged their membership for a $3.6 million business loan, then defaulted), that the creditor was to remain ONLY an assignee of the economic and membership rights in the LLC and DID NOT obtain managerial and voting rights in the LLC because the ONLY method by which an assignee or transferee of a membership interest could obtain voting and management rights is pursuant to the Operating Agreement. Upon appeal, the district court affirmed the decision of the Bankruptcy Court.

In this case, the Operating Agreement of the LLC required the following in order to admit a “substituted member” with “voting rights”:

(a) the consent of the Managers approving such admission.
(b) the transferee was required to execute such instruments as the Managers may deem reasonably necessary to effectuate such admission;
(c) the transferee had to agree in writing to accept and adopt all terms and conditions of this Operating Agreement, as the non-transferring Members may reasonably determine.

In this case “Manager Consent” could be withheld because the “manager” and the “member” (who pledged the asset to the Bank) were not the same person. This under-scores the value of our Nominee Manager Service as not just a privacy tool, but also as an important legal protection tool.

The Operating Agreement of your LLC should include the important provisions listed above in order to avail the members of this extremely powerful protection, as provided in this case. Our standard Operating Agreement includes similar provisions and is included in the annual records service.