How to change an LLC operating agreement

You’ve drafted your company’s Articles of Organization and completed your initial operating agreement. At this point, you may be so tired of paperwork that you don’t see a reason for amending your existing LLC operating agreement.

However, there can be some long-term benefits to keeping your operating agreement as up-to-date as possible to reflect the current state of your business.

Let’s review a few changes that could warrant an amendment to your document.

There may come a point where an existing LLC member’s capital contributions change. This could mean they’re not entitled to a higher ownership interest in the business. Or you may welcome a new member. This may require you to consider their capital contributions and amend the ownership percentages of all existing members.

In both cases, amending your company’s operating agreement is likely a good idea. Doing so will ensure everyone’s membership interests are properly accounted for.

In a member-managed LLC, at least one of the company’s members takes responsibility for overseeing the day-to-day operations of the company. Typically, you’ll use an operating agreement to assign those responsibilities. This gives all sides a document to refer to if disagreements arise.

With manager-managed LLCs, a third party who isn’t an LLC member handles the day-to-day operations. Again, you’ll likely use your operating agreement to denote this outside party. The operating agreement should also include their responsibilities and their interactions with other members.

If you choose to switch from one management structure to the other, you must amend your operating agreement to reflect the changes. You may also have to make a filing with your Secretary of State to update how your LLC is managed.

Though you may create them simultaneously, your LLC’s operating agreement and Articles of Organization are different documents.

Your Articles of Organization are the forms you submit to the Secretary of State (or equivalent state authority) to start your business. They typically come with a filing fee and require you to list the name, address, purpose, and, in many cases, the registered agent for the business.

Many of the details from your Articles of Organization may find their way into your business’ LLC operating agreement. However, the agreement is more focused on defining the intended structure of your LLC. It’s usually internal – few states legally require you to have one. Additionally, you may use it to set rules and bylaws for the company. Plus, you can use your operating agreement to note your members’ roles, contributions, and ownership interests.

Now that you know the changes that may call for an amendment, it’s time to figure out how to make updates. Keep in mind that the specifics may differ depending on your state and how you’ve organized your business. However, keep reading for three general steps you may follow.

Any member can suggest a change to your LLC operating agreement. However, you can’t put that change into place without the approval of the rest of the members. After all, your operating agreement is a legal document. Granting every member the power to change it whenever they feel like it could lead to chaos within your business.

After a change is suggested, the proposed amendment to your original operating agreement goes to a vote between all members. If the proposal is approved, you can move forward with implementing the change. In some cases, depending on the rules you drafted in the operating agreement, the change may be approved via a majority vote.

 As with most major issues your business’s decision-makers confront, the procedure for making changes to the agreement should be clearly described in the agreement itself. If this isn’t the case, you will need to consult your state’s default rules for the percentage needed to approve a change.

The last step is also the simplest: have all the members of the LLC sign the amended agreement.

Assuming you achieved unanimous agreement for the change in Step 1, this shouldn’t be a problem. Do you have a member who refuses to sign and slows down the process? You may need to go back to square one. You will likely need to convince them of the need for the amendment before you can move forward.

Propose the amendment to members, get their agreement, and then work with a legal professional to draft it into your operating agreement.

There’s no limit on how often you can update an operating agreement, assuming you receive approval from LLC members each time.

Usually, you propose an amendment, and LLC members vote. Assuming the vote passes, the amendment is built into the operating agreement and signed by all members.

You may amend an operating agreement for a few reasons. For example, when a new LLC member joins, a change in membership stakes occurs, or you want to change any rules used to govern the company.