3. Operating Agreements for Special Situations
We publish four limited liability company operating agreement forms for use in special situations.
The first is designed for an LLC with two members who are husband and wife. Form 3.1 is a brief, bare-bones agreement that omits many provisions commonly found in operating agreements between unrelated parties.
Form 3.2 is also an operating agreement for an LLC owned by a single family. However, this agreement is designed for an LLC with members in two or more generations that holds investment real estate or other assets. This form can be used in connection with an individual’s estate planning if he or she is concerned about preserving family ownership of property, providing for its management, and transferring it to younger family members with a minimum of cost in terms of recording fees and transfer taxes.
An LLC providing medical, accounting, legal, or other professional services should have an operating agreement that recognizes the peculiarities of professional practice. A professional LLC’s profits are often shared based on members’ contributions to income rather than capital and may change frequently. An operating agreement for a professional LLC also needs to recognize members’ needs for cash flow to cover living expenses and may require annual distributions of excess cash in recognition of the LLC’s limited need for capital. Restrictions on the right of members to engage in outside income-producing activities are common in professional LLC’s operating agreements, as are detailed provisions relating to time off, sickness, and disability. Form 3.3 addresses these issues and as well as others.
An LLC can elect to be taxed as a corporation for federal income tax purposes and then make an S corporation election. This arrangement couples the informal management structure of an LLC with an S corporation’s ability to limit employment taxes. Unlike a typical operating agreement, Form 3.4 contains provisions that are consistent with the federal income tax S corporation rules. Among other things, these provisions protect members against any unplanned loss of the LLC’s S corporation election.
Click below to read more about or purchase a specific form:
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