What is included in a New York LLC Operating Agreement?
Your operating agreement lays the groundwork for how your New York LLC will function internally. Technically, you’re free to include almost anything in your operating agreement, as long as it isn’t contrary to New York state laws. However, you should be sure to include the following topics:
- Transferring membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Management
- Compensation
- Bookkeeping procedures
- Dissolution
New York state prohibits certain topics from being included in an operating agreement, such as a provision to protect a manager who engaged in intentional misconduct or acted in bad faith. Consult the statute NY LLC § 417 (2019) to see a full list of what is prohibited.
What information do I need for Northwest’s free New York LLC operating agreement?
Focus on your business and leave the legal stuff to us. Our lawyers have drafted a comprehensive operating agreement you can use for free. Our template makes it simple to fill out and save your progress, so you can finalize, download, print, and sign your New York operating agreement when you’re ready.
In order to fill out our free operating agreement template, you’ll need your:
This must be your business’ legal entity name, or the name you put on your LLC Articles of Organization.
Did an LLC member contribute $500? $10,000? A vehicle? A laptop? That information goes here.
Write in 16 here since our version has a set amount of pages.
This is an internal document, so you won’t have to submit these names to the state just because they’re on here. However, you might need to add these people to your BOI Report.
Include ALL initial contributions, even if it’s only a small amount of cash or property.
While we definitely recommend having a business bank account, some banks like to actually see the operating agreement before you open an account. If that’s the case, you can leave this blank for now.
The address where your business operates from.
If you aren’t sure when your LLC’s Initial Meeting will be held, you can add it in later.
Pages 13, 14, 15, and 16, on our template, require at least one signature from a member.
Why should a New York LLC have an operating agreement?
A New York LLC should have an operating agreement because a company cannot act for itself. In order to operate, LLCs require real humans (and other entities) to carry out company operations.
According to state statute NY LLC L § 417 (2019), members of a New York LLC must adopt a written operating agreement before, at the time of, or within ninety days after filing the New York LLC Articles of Organization. Also, statute NY LLC L § 1102 (2019) requires you to a maintain a copy of your operating agreement, in addition to any amendments.
Even if it were not required by New York law, you’d still want to have a strong operating agreement. Here’s why.
1. Your operating agreement proves you own your LLC.
New York does not require you to list your LLC’s members’ names on the Articles of Organization or biennial report. While this is great for helping you protect your privacy, it makes it harder for you to prove who owns the LLC, which you might need to do when opening a company bank account. Your operating agreement, however, will list all your members’ names and addresses, and can be used to help prove your ownership of the LLC.
2. An operating agreement can help reinforce your limited liability status.
To maintain limited liability, an LLC must be able to prove that it is a separate legal entity from its owners. To show this legal separation, LLCs must abide by certain rules, such as keeping business spending separate from personal spending. Another way to help demonstrate that your LLC is a separate entity is by following the rules and procedures laid out in your operating agreement. If your LLC ever has to deal with a lawsuit, your operating agreement can help strengthen your case.
3. An operating agreement can help you when your members disagree.
Any time two or more people go into business together, they’re destined to disagree at some point or other. By putting in writing how you’re going to deal with important situations, you can head off a lot of potential arguments.
4. An operating agreement can override New York’s default laws.
Whatever you choose not to cover in your operating agreement will be governed by New York legal statutes. These statutes might not perfectly fit your business. That’s why it’s important to customize your operating agreement.
New York Case Law
We asked our lawyers for an example of how an operating agreement can make or break your LLC. Here’s what they said.*
“Consider the case of Nader & Sons LLC where the members had an operating agreement in place, but one group seemingly failed to actually review and understand the operating agreement. The court simply looked to the plain language of the operating agreement to promptly resolve the dispute among the members. While an operating agreement does not guarantee that litigation will not occur, the presence of a clear written operating agreement serves to expeditiously resolve internal LLC matters.
“As seen in the Nader & Sons LLC case, failure to actually adhere to and understand an operating agreement led to avoidable disputes among the members resulting extensive and expensive litigation. Such valuable resources could have been preserved had the members of the LLC taken the time to plan ahead, discuss potential pain points, and distill their collective understanding into an operating agreement.”
FAQs
Yes. New York statute NY LLC L § 417 (2019) states that an LLC shall adopt a written operating agreement.
No. Because your operating agreement is an internal document, you do not need to file it with the Department of State. However, New York statute NY LLC L § 1102 (2019) requires that you maintain a copy of your operating agreement, along with any amendments.
Yes, not only because you are legally required to have a written operating agreement in New York state, but also because the operating agreement helps you prove that you own your LLC. And even more importantly, it helps you maintain your limited liability status. If you are faced with a lawsuit and do not have an operating agreement, a court may determine you are not a truly separate entity from your business—which would result in losing limited liability protection.
*This is informational commentary, not advice. This information is intended strictly for informational purposes and does not constitute legal advice or a substitute for legal counsel. This information is not intended to create, nor does your receipt, viewing, or use of it constitute, an attorney-client relationship. More information is available in our Terms of Service.