A Mississippi LLC Operating Agreement, to put it plainly, serves as a custom-made schematic for your LLC, offering a comprehensible matrix for its operations. Picture us having an easygoing coffee chat, and I present this to you as your exclusive rulebook. It sketches out the commands for your enterprise's journey, taking into account factors like the carve-up of ownership, modes of decision-making, and schemes for the shift in leadership.
Pertaining to this contract, which is under the guidance of Mississippi's LLC legislations, you'll trace out vital elements such as the obligations of members, decision-making sequences, and tactics for the resolution of disagreements - effectively, you are crafting a guide to dodge any future miscommunications and keep your business path clear.
No, it's not legally required in Mississippi under § 79-29-123. 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 Mississippi operating agreements, including:
Here are some key components that are typically included in a Mississippi LLC operating agreement:
Let's take a stroll through the common provisions of an Operating Agreement while providing some sample wording to help you craft your own.
Presumably, by now you've already decided on a name for your LLC. This is the name you chose when registering your LLC formation paperwork with Mississippi. However, besides giving your LLC a name, you also want to spell out its purpose. No need for a PhD-level explanation here. In fact, staying general can be strategic as it leaves room for unanticipated opportunities down the road without unnecessary paperwork.
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 is where you declare the management style of your LLC, i.e., manager-managed or member-managed. It also establishes the rights and duties of each member, which include capital contributions, voting privileges, and managerial layout. Even if you're flying solo at this stage, going through this section is vital in cementing 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.
The registered agent is your business's reliable mailman, responsible for receiving and handling critical paperwork on the behalf of your company. It's optional to include this in your operating agreement since it's already mentioned in the LLC formation documents you filed with Mississippi. But having it on both is just fine too.
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 of an LLC" is basically the expected life cycle of your Limited Liability Company. It's the length of time your LLC plans to be in existence, as detailed in the formation papers. While a majority of entrepreneurs form LLCs with the determination of operating them indefinitely, it's okay to give your LLC a specific lifetime or expiry date if that suits your goals.
By default, most states, including Mississippi, consider LLCs as "perpetual", implying they can exist for as long as you want them to. Most Mississippi-based LLCs opt for this perpetual duration. Here's a sample clause for this.
The duration of the Company will be perpetual.
Capital contributions refer to the financial resources, assets, or even services you offer to jumpstart your LLC's operations. It's like your business's first paycheck that gets things up and running. For single-member LLCs, this starting capital comes straight from you as the only owner, which means you have carte blanche to decide the amount of cash or assets to inject into the business.
Keeping a proper record of your capital contributions is non-negotiable. It helps keep your business's financial skeleton healthy and provides key details for tax reasons.
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
Indemnifications in an LLC's Operating Agreement work as a legal shield that safeguards the company's members from specific costs tied to potential legal troubles that could arise from their roles in the business. This means that the LLC would shoulder any legal charges or damages if a member faces a lawsuit related to their work for the firm.
The agreement should offer a crystal-clear explanation of when and the situations where the LLC will offer this protection, along with any exceptions. Typically, indemnification doesn't cover intentional misconduct or gross negligence. Adjust these terms according to your business's unique risks to ensure proper coverage.
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.
A Mississippi LLC can take one of four tax routes: a sole proprietorship, partnership, S corporation, or C corporation. The tax route your LLC will take hangs on the number of members and the tax status your enterprising selects with the IRS.
Your LLC's operating agreement should contain well-outlined sections related to tax status. These sections deliberate your elected tax status, how you can modify it, and how you address tax returns and allocations when necessary. By doing this, your LLC organizes its strategy to manage finances effectively, including profits, losses, dividends, and taxes. The goal is to provide a helpful roadmap to navigate any tax-related bumps that may show up on your business journey.
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 distribution clause provides clear guidelines on when your LLC will distribute the income it earns. If you're operating a single-member LLC, this might seem less critical. However, for multi-member LLCs, it's important to specify the timelines, requirements, and process for 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.
So what's the move if you need to alter any part of your LLC agreement? Simple, you just follow the rules laid out in your LLC amendment clause. For single-member LLCs, this process is significantly less complicated. For multi-member LLCs, careful thinking is mandatory regarding voting percentages and requirements needed to modify 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.
By default, LLCs are typically free of following strict corporate protocols – that's more of a corporation thing. However, sometimes not adhering to some corporate rituals could hurt your chances of maintaining your corporate veil. So, it may be beneficial to include a waiver of all 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 the path gets a bit rocky. It instructs how your LLC should be dissolved and who takes the reins of the LLC in the event of major life changes, like your passing.
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 your operating agreement is the date it comes to life. In other words, it's the day the agreement goes from paper into action.
Nope! Despite the importance of your LLC operating agreement, it does not require official filing like your Articles of Organization (or Certificate of Formation, depending on your state). It's an internal document primarily for your own record keeping. Sign it, store it away, and just make sure it's easy to access when the need arises.
For many small business owners, the idea of their business blossoming beyond individual management is a dream come true. If you ever find yourself in this delightful position and wish to add another member to your LLC, you will need to revise your LLC paperwork, reflecting the new partnership agreement. Chances are, you'll require an entirely new agreement—the needs and dynamics of multi-member LLCs can be vastly different from sole-member LLCs.
And that's it! You're well on your way to putting together your LLC operating agreement. Here's to your business success in Mississippi!
