Illinois LLC Operating Agreement: the Document Contents and How to Make It up

Last updated on: August 28, 2021

Setting up an LLC is only the first step you have to make while launching a new business, and creating a legal entity is only one of the many moves you’ll take to keep your company up and running. If you decide to conduct your business in Illinois and choose the limited liability company structure for that purpose, after you get it registered with the state, you need to take care of some other aspects both on the external and on the internal company level to smoothly operate your firm and avoid any legal troubles. At this point, many entrepreneurs already aware of all the ins and outs of doing business in a specific state might want to write an LLC operating agreement. By defining the operating procedures and owners’ responsibilities, it will outline the company stakeholders’ relations both for themselves and for the business environment. To draft an Illinois operating agreement, you can either find a free template online, hire a legal helper, or contact some legal service for that. Yet, before you choose which option is better for you, let’s dig deeper into the subject to give you a full overview. 

An LLC Operating Agreement: What Is It?

Basically, an LLC Operating Agreement is a legal document that will draw a precise business struсture for your entity and outlay official procedure that will let you run your company in a legible and protected manner. Normally, it’s an essential internal document for an LLC, whether a single-member or a multi-member one, that accurately outlines the company ownership hierarchy, determines and regulates the member responsibilities and rights, and establishes major managing operations. By binding the business partners with certain obligations, at the same time, this document ensures solid legal protection crucial for any business. 

Do I Need This Document for my LLC to Run It Smoothly in Illinois?

Unlike the Article of Organization compulsory to file your LLC with the Secretary of State, an operating agreement is not a must. According to the Illinois LLC Act (Section 805 ILCS 180), it’s solely the company’s choice whether to draft an operating agreement or not. On the other hand, it by no way means you should refuse this document. In fact, functioning as a shield for your professional and personal assets, it’s highly beneficial for your business. Clearly defining the company management structure, personal liabilities of its members, capital contributions, as well as profit and loss distributions, an operating agreement will give you protection in any potential legal disputes that might arise. And the governing power of this document over the owners and managers’ relations with the company is even stated in Section 15-5 of the Illinois LLC Act. 

Operating Agreement Advantages

Though having an operating agreement in Illinois is not obligatory, any legal advisor will recommend you to have one in place since it will save your peace of mind about lawful regulation of any possible business conflicts. To be more specific, the benefits you’ll get with an Illinois LLC Operating Agreement include:

  • Clear distinction and designation of owners shares in the capital in percentage for members’ personal asset protection;
  • Setting standards and rules for office and company operations to maintain efficient day-to-day work; 
  • Outlining all internal procedures impacting the business such as adding or excluding company members, changing the registered agent, and company dissolution to avoid any confusion and misunderstanding;
  • More respect from Illinois courts in case you get involved in a legal dispute;
  • Priority of an operating agreement over the state default rules (which might be not the best option for your business) for company operation;
  • Your more favorable status for potential investors, partners, and lenders. 

Drawing up An Operating Agreement

As mentioned above, while forming an LLC in Illinois, you can choose to write an operating agreement by yourself, delegate this task to a professional lawyer, or contact an online legal service for that. While choosing a DIY route, skip searching on the Secretary of State website since you’ll find no official form or directions there. Instead, you’ll spot a whole bunch of free templates online, most of which are helpful and well-prepared. Other than that, if you form your LLC with an LLC service, all of them can provide an operating agreement, either a generic one or even a customized version.

Anyway, no one says you can’t prepare this document by yourself. Take a look at what info to include to draft an efficient operating agreement:

  • The owner or Member Data: This point covers full names and valid mailing addresses of each company member. 
  • Company Data: Accurate company name (both full and abbreviated), registered office address, headquarters, and operating office address. 
  • Registered Agent: Specify the name, address, and contact data of your designated registered agent. 
  • Effective Date: A specific date you’ve filed or plan to file your Articles of Organization with the state that is considered the date of your company formation.
  • Company Activities: It’s a section outlining the business activities your company will deliver in the state of Illinois. Normally, this info is included in the Articles of Organization in a brief form. 
  • Duration: You need to define the term during which your company will legally operate in Illinois. Usually, it’s not some specific date but rather until the company owners decide to terminate their business. 
  • Capital Investments: The amount of money each co-owner has contributed to the company statutory fund.
  • Owners’ Shares: Company shares each member has in percentage. 
  • Financial Liabilities: You need to specify how company profits and losses will be distributed among its members.
  • Managing Roles Allocation: Designating operating company managers and defining their responsibilities and powers to closely regulate the process of making crucial business decisions. 
  • Reimbursements: Describing how the company managers will be paid for their job. 
  • Accounting: Detailed overview of the company bookkeeping and applied accounting policies. 
  • Taxation: Specifying how you want your LLC to be taxed. Depending on your individual business scenario, you can choose between different business structures to optimize your tax returns. 
  • Adding Members: Describing how new company members will be introduced and entitled and what powers, roles, and responsibilities they will have. 
  • Withdrawing Members: Step-by-step procedure of excluding a company member resulting from death, retirement, violation, or illegal deed. 
  • Making Changes: How the company members accept any amendments to the operating agreement. 
  • Company Termination: Determining the procedure of distributing the company assets and debts or losses in the event of its dissolution. 

It’s a full list of all the sections that can be included in an operating agreement depending on the business situation and the type of your LLC. In the end, company owners are the only ones who decide what to incorporate into their final document. If you have a single-member LLC, you can skip some points. However, think twice since you might want to make some changes as your company grows and it’s better to create a solid base for that growth from the start. Once your operating agreement is drafted, get it reviewed and signed by all company members and store it along with other important company docs. 

Amending an Operating Agreement

In the course of time, your company will develop and change and so will your business needs. Some aspects might require closer attention and some business areas might need better and stronger control. Keep an eye on those changes and don’t forget to update your operating agreement to match your current business organization. Modifying your agreement is a pretty simple process. Since amendments to the doc need no state verification, it’s enough to get the approval of all LLC members/managers to validate the change. 

For instance, in the case your current registered agent resigns, to continue doing business in Illinois, you need to appoint a new one immediately. Simply insert the new registered agent service info into the agreement and print it out. Just remember to save all previous copies of the document to be able to track the changes. 

Third-Party Specialists Assistance

If you are not 100% sure about your own abilities to write down an effective and comprehensive operating agreement, you’ll have a few alternatives to go for to get everything done quickly and in the most effective and eligible manner. 

Engaging a Legal Advisor

Hiring a professional to check your doc or even do the whole job for you is an optimal decision if you are new to this sort of documentation and feel comfortable neither with the legal vocabulary nor with the whole procedure itself. This way, you can rest assured your operating agreement will tackle all possible outcomes and disputes professionally. 

Think it’s a costly option? Well, it’s definitely a more expensive one than a DIY route, yet, given all the long-term benefits, it’s well worth it. Besides, while some attorneys charge on an hourly basis, others offer to draft an operating agreement at a flat rate. To find the right lawyer, you can check specialized databases like Avvo that has a whole list of Illinois LLC lawyers.

Engaging an LLC Service

For many beginner entrepreneurs, the LLC formation process might look quite intimidating and confusing. This is where LLC services come to help. By hiring an online service, you’ll get all your filings completed quickly and without paying a fortune. Not only will those services form an LLC from scratch but also they will draft a customized operating agreement for your LLC that will be adapted for your specific situation and business needs. And if you wonder what services to choose, ZenBusiness and Northwest Registered Agent really excel in this concern.

Important Info to Remember

It’s worth noting that unless you make an operating agreement when registering your company, your LLC’s activities and actions will be regulated by the state’s LLC Act. In other words, anything not covered in the agreement falls under the power of the state’s default laws, which are not always favorable for the company. Hence, if you want more personal control over your business and more flexibility in company operation, don’t neglect to create an operating agreement. 
At the same time, though, there are some aspects regulated by the state only. Thus, the personal rights of the company members beyond the LLC legal field are not limited by the agreement as well as the document has no restricting power over state-mandated requirements and penalties for overdue Annual Reports, invalid registered agent, etc. To check all state rules and take them into consideration when drafting your operating agreement, see LLC Act, Section 15-5.

Senior Business Tax Writer, etc
Jean Wilson Murray
https://bestllcservices.co/
(323) 789-5289
Senior Business Tax Writer, etc
Jean Wilson Murray

In this IncFile vs ZenBusiness review, we're going to compare two of the most popular LLC formation services based on pricing, features, and drawing out differences and similarities to let you see which is most suitable for you and your business.

You can learn more about @Mike here.

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