A Wisconsin LLC Operating Agreement is your LLC's navigational chart. It lays out the structure for your business operations, much like a custom guidebook. From ownership shares and decision-making procedures to plans for potential roadblocks - everything's covered.
This agreement falls under Wisconsin's LLC regulations, effectively outlining essential aspects like roles of members, ways to make decisions, and how to avoid and handle any potential disagreements. Essentially, it's your conflict-avoidance plan mapped and ready to go.
No, it's not legally required in Wisconsin under § 183.0102. 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 Wisconsin operating agreements, including:
Here are some key components that are typically included in a Wisconsin LLC operating agreement:
Let's take you through the common facets of an LLC agreement and provide you with some samples for a clearer understanding.
You're likely quite clear with your LLC's name at this point (you would've declared it when you filed your LLC formation document with your state). But the agreement should also state the purpose of your LLC. You might not want to make it too specific as a broad statement leaves room for you to diversify without having to re-file.
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 segment of your agreement will dictate if your LLC is managed by its members or a manager. Here, you also pen down rights and duties of each member, such as their capital input, voting authority, and management layout. Even as a sole proprietor, this step is indispensable for setting up 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.
A registered agent is the point of contact for your company to receive important documents. Some LLC operating agreements include details about the registered agent, but it isn't absolutely required since you'd already have this information on your formation documents that you filed with your organizing state.
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.
Consider the "term of an LLC" as. well, the lifetime of your Limited Liability Company. It stipulates how long the LLC is intended to exist, as noted in your formation documents. You might start an LLC intending for it to function indefinitely, but you're also free to denote a specific period or termination date for your LLC.
LLCs are typically "perpetual" (indefinite) in most states and the same holds true for most LLCs in Wisconsin. Here's a sample provision:
The duration of the Company will be perpetual.
Capital contributions equate to the initial investment you inject into your LLC to commence operations (be it funds, property, or services). For single-member LLCs, capital contributions are solely on you as the owner. That means you have the liberty to decide the amount of funds or assets you'd want to pour into your business.
One thing to note is that you document your capital contributions accurately to depict your company's financial structure clearly. This can be handy during tax season!
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
Indemnification clauses in an Operating Agreement serve as a protective barrier for LLC members against certain expenses related to legal hurdles that might pop up as a result of their roles in the business. In simpler terms, the LLC will take care of any legal fees or damages if a member faces a lawsuit tied to their responsibilities for the business.
It's essential that the agreement speaks clearly about when and under what circumstances the LLC will offer this cover, besides any exceptions to it. Generally, indemnification doesn't cover deliberate wrongdoings or severe negligence. So it's important to tailor these terms to your business's specific risks to ensure adequate protection.
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.
In Wisconsin, your LLC's taxes can be classified in four ways: as a sole proprietorship, partnership, S corporation, or C corporation. Your LLC's tax classification hinges on the number of members and the tax status you choose with the IRS.
Your operating agreement ought to include sections related to tax status. These areas should address your chosen tax classification, how it can be modified, and how to deal with tax returns and allocations when applicable. This helps you devise a plan for navigating your business's financial aspects, such as profits, losses, dividends, and taxes. The goal here is to paint a clear picture of your approach to any tax-related matters that may arise.
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.
The profit and loss distributions clause specifies when your LLC will distribute the money earned. For single-member LLCs, this isn't as crucial. However, for multi-member LLCs, it's essential to clarify how, when, and under what conditions the 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.
What do you do when you need to revise a term in your LLC? Simply abide by your LLC amendment clause! For single-member LLCs, this is fairly basic. For multi-member LLCs, it's crucial to think it through and determine voting percentages and requirements to amend 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.
Generally, LLCs are not required to follow corporate formalities—that's typically reserved for corporations. However, not adhering to formalities can jeopardize your corporate veil. Therefore, it's a good idea to include a waiver of 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.
This is your contingency plan for when things don't work out as planned. The section guides you on dissolving your LLC and designating who will manage the LLC in the event of your passing or incapacity.
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.
The effective date of the operating agreement is when it goes into action. Another way to think of it is the day the agreement starts to work its magic.
Unlike your Articles of Organization (or Certificate of Formation, depending on your state), your operating agreement is an internal document that you just keep in your company's records. Simply sign it, store a copy, and have it handy for when you need it.
Many small business owners aspire to grow their businesses beyond what they can manage alone. If you're fortunate enough to find yourself in that position and are ready to add a new member to your LLC, you'll need to redo the agreement to align with your arrangements with the incoming partner. In most cases, you'll want to draft an entirely new agreement since a multi-member operating agreement is considerably different from a single-member version.
