Picture a Pennsylvania LLC Operating Agreement as a personalized roadmap for your business, detailing clear directions for its operations. Like a GPS system for your business, it stipulates critical rules of running your LLC, covering ownership structure, decision-making procedures, and protocols for when members exit or enter the business.
Structured under Pennsylvania LLC laws, this agreement spells out vital details like member duties, decision-making strategies, and mechanisms to resolve disputes—offering a reliable path to circumvent future disagreements among stakeholders.
Here are the different templates we offer for Pennsylvania:
No, it's not legally required in Pennsylvania under § 8815. 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 Pennsylvania operating agreements, including:
Here are some key components that are typically included in a Pennsylvania LLC operating agreement:
Let's walk through the common elements of an agreement, with samples for each to guide you along the way.
Most likely, you've already christened your LLC while filing the formation document with the Pennsylvania Department of State. At this stage, you also need to articulate the purpose of your LLC. Aim for an expansive, rather than overly specific statement, allowing room for unpredicted business opportunities without reprising the filing process.
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 component is where you clarify whether your LLC will be member-managed or manager-managed. It’s no less essential for single-member LLCs as it shapes firm foundations for your business. Disclose each member's rights and duties, including their capital contributions, voting influence, and function in the management hierarchy.
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.
Your registered agent is responsible for handling crucial legal documents for your company. While some operating agreements might encompass this information, it's not strictly necessary as it already appears in your posted formation document.
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.
The term denotes the lifespan of your LLC as stipulated in your formation paperwork. Whether you wish for your LLC to operate indefinitely or only for a specified term, it's your call. Pennsylvania, like many other states, deems LLCs "perpetual" unless otherwise directed, which means they can persist as long as you desire.
The duration of the Company will be perpetual.
Capital contributions refer to the initial injection of resources (cash, property, or services) into your LLC to jumpstart its operations. If you're a single-member LLC, you have leeway to decide how much and what kind of assets you want to invest in your enterprise. Yet it's crucial to document these contributions comprehensively, as it helps sketch a clear financial framework for your business and offers crucial data for taxation purposes.
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
Picture indemnification as a protective umbrella saving your company's members from specific costs related to legal hassles that potentially exist behind their roles in the business. Essentially, it means that your LLC stands ready to blanket the legal costs or damages if a member faces a suit tied to their roles in the business. Clearly outline under what specific scenarios your LLC will step up to provide this safety net and note any exceptions. Usually, indemnification wouldn't cover deliberate misconduct or serious negligence. Therefore, adjusting these terms to fit your business's unique risk profile is crucial.
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.
Your Pennsylvania LLC can opt to be taxed in one of four ways—either as a sole proprietorship, a partnership, an S corporation, or a C corporation. Your LLC's operating agreement needs to include sections that discuss your tax status, how you can change it, and how to handle tax returns and allocations. This provides a clear financial roadmap for your LLC to maneuver through profits, losses, dividends, and taxes.
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.
This clause is like a schedule specifying when your LLC dispenses cash inflows. For single-member LLCs, it's less complicated. However, for multi-member LLCs, you'll want to mention how, when, and the preconditions for making these distributions.
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 to do when you wish to change something in your LLC? No worries—just follow your amendment clause. For single-member LLCs, it's relatively straightforward, but for multi-member LLCs, it's vital to flesh out the specifics around voting thresholds and the prerequisites for amending 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.
Unlike corporations, LLCs aren't generally expected to follow corporate formalities. However, in certain scenarios, sidestepping these formalities might put your corporate veil at risk. For that reason, incorporating a formalities waiver in your operating agreement is prudent.
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 clause acts as a contingency plan for those rainy days when things don't pan out as desired. It stipulates how to wind down your LLC and designates who will retain control over the LLC, should the unthinkable occur.
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 is essentially the day your agreement springs into action—or the date it "takes effect."
No, certainly not! Unlike your Articles of Organization which you submit to the state, your operating agreement is an in-house document. Just secure a signed copy in your company records for future reference.
If you reach a stage where your thriving business necessitates another member, you'll need to revise your paperwork in harmony with your agreement with the new partner. More often than not, a multi-member agreement will be far cry from a single-member agreement, demanding a fresh one to be written.
Just remember, no matter where your entrepreneurial journey takes you, your LLC Operating Agreement is your trusty roadmap.
