Drafting Limited Liability Company
Operating Agreements
Published by: Wolters Kluwer
Principal Author: John M. Cunningham
Co-author: Amanda Nelson
Materials for Use in Drafting Operating Agreements under General-Purpose Form 1.3 (with Drafting Guidelines and with Annotated Version of the Form)
FORM 1.3 IS A MODEL OPERATING AGREEMENT (GENERIC) FOR A SINGLE-MEMBER LLC:
1.	WHOSE MEMBER IS AN INDIVIDUAL;
2.	WHICH IS MANAGED BY A NON-MEMBER MANAGER;
3.	 WHICH IS CLASSIFIED FOR FEDERAL TAX PURPOSES AS A DISREGARDED ENTITY; AND
4.	WHOSE MEMBER IS SUBJECT TO FEDERAL TAXATION ON THE LLC’s INCOME, LOSSES AND OTHER TAX ITEMS AS A SOLE PROPRIETOR

DRAFTING GUIDELINES UNDER FORM 1.3
TABLE OF CONTENTS
PART I.	Form 1.3—Introduction
PART II.	Exhibits and Chapters in Drafting Limited Liability Company Operating Agreements Relevant in Drafting Operating Agreements Under Form 1.3
____________________________________________________________________________________
TABLE OF EXHIBITS
Exhibit 1	Form 1.3 (annotated)
____________________________________________________________________________________
PART I.	Form 1.3—Introduction
1.	Form 1.3—general description.
Form 1.3 is designed to enable you to draft operating agreements for a single-member LLC with the following characteristics:
(a)	Its member is an individual;
(b)	It is managed by a non-member manager appointed by its member;
(c)	It is classified for federal tax purposes as a disregarded entity; and
(d)	Its member is subject to federal taxation on their LLCs’ tax items as a sole proprietor.
2.	Annotated vs. unannotated versions of Form 1.3.
The last item in the present set of materials concerning Form 1.3 is an annotated version of Form 1.3.  An unannotated version of Form 1.3 is available on the online digital forms list.
3.	Single-member LLCs vs. multi-member LLCs.
You should consider advising individuals who ask you to help them form single-member LLCs that they should consider conducting their businesses through multi-member LLCs rather than single-member LLCs, since:
(a)	Multi-member LLCs arguably provide better asset protection than single-member LLCs; and
(b)	Under an IRS proposed regulation designated Prop. Reg. § 1.3402(a)-2 (the “Prop. Reg.”), an opportunity is available to individuals who are members of multi-member LLCs taxable as partnerships to reduce their Self-Employment Tax liability on their shares of LLC income.
Spouses are sometimes ideal second members of two-member multi-member LLCs.
See generally, Chapter 5 (“Single-member LLCs with Individual Members”), Section 5.02 (Single-member LLCs vs. Two-Member LLCs”).
4.	Some single-member LLCs whose members are individuals should be taxable as S corporations.
The tax items of the single-member LLCs of a significant number of individuals should not be taxable to the members as sole proprietors, as provided in Form 1.3.  Rather, these single-member LLCs should be taxable as S corporations, and their members should be taxable as S corporation shareholders.  If you lack federal tax expertise, you should consult with a federal tax professional about whether your client’s single-member LLC should be taxable as a sole proprietor or as an S corporation.  Forms 1.4 through 1.6 in are for single-member LLCs taxable as S corporations.
5.	Form 1.3 is a “generic” form.
As indicated in the cover page of these materials, Form 1.3 is a “generic” form.  That is, you must adapt it for use under the governing LLC act.  However, the form is readily usable under any LLC act.
6.	Form 1.3 is a “general-purpose” form.
That is, it can be used by an individual to conduct any type of single-owner business. The tables of contents, sections and subsections of Form 1.3.  
All legal, tax and other issues likely to be important to individuals conducting their single-owner businesses as Form 1.3 LLCs are identified and addressed in the tables of contents, sections and subsections of the form.
7.	The two versions of Form 1.3.
As their table of contents indicates, the present materials contain, in addition to these drafting guidelines, an annotated version of Form 1.3.  The annotated version of Form 1.3 makes bracketed capital-letter comments, highlighted in yellow, on various provisions of the form for which annotations may be useful to you.  The digital forms list lists Form 1.3 materials containing an unannotated version of Form 1.3.  However, in both versions of the form, all terms that you must fill in when drafting operating agreements under the form are highlighted in yellow.
8.	Plain English.
To make Form 1.3 readily intelligible to non-lawyer clients on a careful first reading, the form is drafted in plain English.
9.	Unavailability of similar forms.
To the authors’ knowledge, no form comparable to Form 1.3 in clarity, comprehensiveness or explanatory features is available from any other authors.
PART II.	Exhibits and Chapters in Drafting Limited Liability Company Operating Agreements That Are Relevant in Drafting Operating Agreements Under Form 1.3
The following exhibits and chapters in this book may be useful to you in drafting operating agreements for your clients under Form 1.3:
1.	LLC formation checklist.
An exhibit consisting of a comprehensive LLC formation checklist is set forth at the beginning of Part I.
2.	List of forms.
A list of the 28 general-purpose forms is set forth in an exhibit immediately following the above exhibit.
3.	Exhibit 15-4.
A model engagement letter is contained in Chapter 15 (“Initial Contacts with Clients”), Exhibit 15-4 (“Model Engagement Letter”).
4.	Chapter 1.
Chapter 1 identifies and discusses the 12 chief characteristics of LLCs, and Exhibit 1-1 briefly summarizes these characteristics.  You may want to give your client a copy of Exhibit 1-1.
5.	Chapter 2.
Chapter 2 (“Choosing the Right Model Operating Agreement”) provides clear guidelines for selecting the best form for your client from among the 28 general-purpose forms in the book.
6.	Chapter 3.
Chapter 3 (“General Drafting Guidelines”) contains general guidelines for drafting LLC operating agreements.
7.	Chapter 5.
Chapter 5 (“Single-Member LLCs with Individual Members”) addresses in detail all significant legal and tax issues relevant to the drafting of an operating agreement for your client under Form 1.3.
8.	Exhibit 5-1.
Exhibit 5-1 provides a comprehensive list of questions you should ask your client about herself and about her business before you begin drafting an operating agreement for her single-member LLC.
9.	Chapter 9.
As its title indicates, Chapter 9 provides guidelines for evaluating and using model operating agreements.
10.	Chapters 16 and 17.
Chapters 16 and 17 contain guidelines for complying with the rules of professional conduct applicable in drafting LLC operating agreements.
11.	Federal tax issues.
Chapters 38 through 40 address all of the principal federal and state tax issues potentially important to your clients in conducting their business through a single-member LLC taxable as an S Corporation.  See especially Chapter 45 (“Tax Provisions Under Subchapter S”).
However, if you are not an expert on LLC tax, you should consult with an expert about the federal tax regimen to which the single-member LLC of your client should be subject before you use Form 1.3 as the basis for the operating agreement of the client’s LLC.

EXHIBIT 1
FORM 1.3 (ANNOTATED)

(ATTACHED)

OPERATING AGREEMENT 
[OR OTHER APPROPRIATE NAME UNDER THE GOVERNING LLC ACT] 
OF [NAME OF LLC]
A Member-Managed Single-Member 
[STATE] Limited Liability Company 
Whose Member is Taxable as a Sole Proprietor

Dated as of ________, 20__

SUMMARY TABLE OF CONTENTS
Section 1	PRELIMINARY PROVISIONS
Section 2	MEMBER’S CONTRIBUTION TO THE LLC
Section 3	ALLOCATIONS AND DISTRIBUTIONS
Section 4	LLC MANAGEMENT
Section 5	Transfers AND PLEDGES OF MEMBERSHIP RIGHTS
Section 6	DISSOCIATION OF THE MEMBER
Section 7	LLC RECORDS AND INFORMATION
Section 8	DISSOLUTION OF THE LLC, ETC.
Section 9	TERM AND TERMINATION OF THIS AGREEMENT
Section 10	MISCELLANEOUS PROVISIONS

DETAILED TABLE OF CONTENTS
Section 1	PRELIMINARY PROVISIONS
1.1	Effective Date of Agreement
1.2	LLC’s Name, Etc.
1.3	Entity Status of LLC; Ownership of LLC Assets
1.4	LLC’s Principal Purpose
1.5	LLC’s Powers
1.6	LLC’s Duration
1.7	LLC’s Principal Place of Business
1.8	Management of LLC by a Non-Member Manager; Appointment of Manager; Delegation, Etc.
1.9	Removal of the Manager and Appointment of Replacement Manager.
1.10	Limited Liability of Member and Manager
1.11	Requirement to Amend Agreement if LLC Has Multiple Members
1.12	Federal and State Taxation of the LLC and the Member
1.13	LLC’s Annual Accounting Period
1.14	LLC’s Accounting Method
1.15	Effect of LLC Act
1.16	Relation of Agreement to Articles
1.17	Member’s Right to Reimbursement of Expenses
1.18	The LLC’s Accounting Firm
1.19	The LLC’s Principal Tax Adviser
1.20	The LLC’s Principal Lawyer [or Law Firm]
1.21	Business Plan
1.22	The LLC’s Community Responsibilities
1.23	The Member’s Use of the LLC’s Property
Section 2	MEMBER’S CONTRIBUTION TO THE LLC
2.1	Contribution—Definition
2.2	LLC Interest and Membership Rights—Definitions
2.3	The Member’s Contribution in Exchange for Membership Rights
2.4	Record of Contribution
2.5	No Duty to Make Additional Contributions, Etc.
Section 3	ALLOCATIONS AND DISTRIBUTIONS
3.1	Definitions
3.2	Member Has Sole Right to Allocations and Distributions
3.3	Distributions by the LLC
3.4	Tax Distributions
3.5	Wrongful Distributions
Section 4	LLC MANAGEMENT
4.1	Decision-Making
4.2	Member’s Fiduciary Duties
4.3	Manager’s Responsibility to Obtain Tax Identification Numbers, Etc.
4.4	Signing of Contracts, Etc.
4.5	Manager’s Duty to Report to Member
4.6	No Duty to Record Decisions, Etc.
4.7	Compensation and Fringe Benefits
Section 5	TRANSFERS AND PLEDGES OF MEMBERSHIP RIGHTS
5.1	Transfers of Membership Rights
5.2	Admission of Additional Members
5.3	Pledges
Section 6	DISSOCIATION OF THE MEMBER
6.1	Dissociation— Definition
6.2	Events of Dissociation of the Member
6.3	The Member’s Death
Section 7	LLC RECORDS AND INFORMATION
Section 8	DISSOLUTION OF THE LLC, ETC.
8.1	LLC’s Dissolution, Winding-Up and Liquidation— Definitions
8.2	Dissolution, Etc., of LLC
Section 9	TERM AND TERMINATION OF THIS AGREEMENT
Section 10	MISCELLANEOUS PROVISIONS
10.1	Entire Agreement
10.2	Amendments
10.3	Governing Law
10.4	Captions
10.5	Incorporation of Articles and Exhibits
10.6	“Discretion,” “Including,” and “Person” — Definitions

TABLE OF EXHIBITS
Exhibit A	Articles of Organization Organization [OR OTHER APPROPRIATE OFFICIAL DOCUMENT FOR USE IN FORMING LLCs UNDER THE GOVERNING LLC ACT]
Exhibit B	The Member’s Contribution to the LLC [IF THE MEMBER PROVIDES FOR A DOLLAR CONTRIBUTION IN SECTION 2.3, THIS EXHIBIT SHOULD BE DELETED.]
Exhibit C	Employment Agreement

OPERATING AGREEMENT [OR OTHER APPROPRIATE TERM UNDER GOVERNING LIMITED LIABILITY COMPANY ACT]
OF ______________, LLC
A Member-Managed Single-Member [State] Limited Liability Company 
Taxable as a Sole Proprietorship
DATE OF AGREEMENT; PARTIES
This limited liability company operating agreement (the “Agreement”), dated as of _________________, 20__, is between the following parties (the “parties”):
1.	[NAME OF MEMBER] (the “member”), an individual, a resident of the State of ____________, residing at _____________________________; and
2.	_________, LLC (the “LLC”), a limited liability company formed and existing under the laws of the State of [STATE], with its principal place of business at ___________________________________.
BACKGROUND
1.	On [DATE] (the “Filing Date”), the member caused the LLC’s articles of organization (the “Articles”) [OR OTHER APPROPRIATE OFFICIAL DOCUMENT FOR USE IN FORMING LLCS] to be filed with the Secretary of State (the “Secretary of State”) of the State of [STATE] [OR OTHER APPROPRIATE OFFICIAL], and on that date the LLC was formed as a limited liability company under the [STATE] LLC Act (the “LLC Act”), [CITATION OF ACT].
2.	A copy of the Articles is attached as Exhibit A.
3.	The principal purpose of the LLC is to [STATE PURPOSE HERE].
4.	[STATE OTHER BACKGROUND STATEMENTS CONCERNING THE LLC TO THE EXTENT USEFUL TO THE MEMBER OR THIRD PARTIES.]
5.	This Agreement sets forth the agreement of the parties about their respective rights and duties as parties to the Agreement and about the business, internal affairs and taxation of the LLC.
TERMS AND CONDITIONS
Intending to be legally bound, the parties agree as follows:
Section 1	PRELIMINARY PROVISIONS
1.1	Effective Date of Agreement
The effective date of this Agreement (the “Effective Date”) shall be the Filing Date [OR AN APPROPRIATE PAST OR FUTURE DATE].
1.2	LLC’s Name, Etc.
The LLC’s name, registered agent, registered office, and form of management shall be as set forth in the Articles. [AMEND THIS SECTION AS APPROPRIATE TO BE CONSISTENT WITH THE REQUIREMENTS FOR ARTICLES UNDER THE GOVERNING LLC ACT.]
1.3	Entity Status of LLC; Ownership of LLC Assets
(a)	The LLC is a legal entity separate and distinct from its member.
(b)	The LLC owns all of its assets in its own name and the member has no direct interest in those assets.
1.4	LLC’s Principal Purpose
The principal purpose of the LLC shall be as set forth above.
1.5	LLC’s Powers
In pursuing its lawful purposes, the LLC shall have the power to do all things that LLCs are permitted to do under the LLC Act.
1.6	LLC’s Duration
The duration of the LLC shall be indefinite and shall terminate only as set forth in Section 8 (concerning the LLC’s dissolution, etc.).  [AMEND THIS SECTION IF THE LLC WILL TERMINATE BY A SET DATE.]
1.7	LLC’s Principal Place of Business
The LLC’s principal place of business shall be as set forth above.  The member may change the LLC’s principal place of business from time to time in the member’s discretion.
1.8	Management of LLC by a Non-Member Manager; Appointment of Manager; Delegation, Etc.
(a)	Management Structure.
The LLC shall be managed by a non-member manager (the “manager”) in accordance with Section 4 of this Agreement.
(b)	Appointment of Manager.
Under the terms and conditions of this Agreement and the employment agreement attached as Exhibit C:
(1)	The LLC hereby appoints [NAME OF MANAGER] as its initial manager; and
(2)	[NAME OF MANAGER] hereby accepts this appointment.
(c)	Delegations.
(1)	Right of Manager to Delegate.
With the advance written consent of the member, the manager may, to the extent permitted by the LLC Act, delegate the manager’s management rights, power and authority from time to time to one or more agents and may amend or terminate any such delegation.
(2)	Written Confirmation of Delegation.
The manager shall use the manager’s best efforts to confirm the fact and terms of each such delegation and of each such amendment and termination in a writing signed by the manager and and filed in the LLC’s records; but no failure to do so shall invalidate the delegation.
1.9	Removal of the Manager and Appointment of Replacement Manager.
The member may replace the manager and may appoint a replacement manager at any time for any reason.
1.10	Limited Liability of Member and Manager
Neither the member nor the manager shall have any personal liability to any third party for any debt, obligation or liability of the LLC solely by reason of being the LLC’s member or manager.
1.11	Requirement to Amend Agreement if LLC Has Multiple Members
(a)	Amendments of LLC Agreement if LLC Becomes a Multi-member LLC.
If, at any time, the LLC has two or more members, the members shall, with reasonable promptness, consult with the LLC’s lawyer and make all amendments to this Agreement that are necessary to reflect the members’ agreement as members of a multi-member LLC.
(b)	Types of Required Amendments.
The amendments referred to in Section 1.12(a) shall include amendments concerning the allocation of the LLC’s profits and losses, the distribution of profits and other LLC assets, the allocation of LLC voting rights and other management rights, fiduciary rights and liabilities, and other appropriate matters.
(c)	LLC Act Default Rules.
In the absence of these amendments, the LLC, upon becoming a multi-member LLC, shall be governed by the default provisions of the LLC Act applicable to multi-member LLCs.
1.12	Federal and State Taxation of the LLC and the Member
(a)	Federal Income Taxation of the LLC and the Member.
For federal tax purposes, the LLC shall be a disregarded entity within the meaning of U.S. Treasury Regulation § 301.7701-2(c)(2), and its income, losses and other tax items (collectively, “tax items”) shall be deemed for federal tax purposes to be those of the member as a sole proprietor.
(b)	Social Security Taxation.
The member shall be subject to Social Security Tax on the LLC’s income as provided under Internal Revenue Code §§ 1401 and 1402.
(c)	State Taxation.
The LLC and the member shall be taxable under the laws of [RELEVANT STATES] as provided by those laws and by the regulations thereunder.
(d)	Internal Revenue Code Section 199A.
The member has consulted with the member’s tax adviser to ensure that the provisions of this Agreement will maximize the federal income tax deduction available to the member under Internal Revenue Code section 199A.
[FOR MOST INDIVIDUALS FORMING SINGLE-MEMBER LLCS, THE ABOVE SECTION 1.12(d) WILL BE OF CRITICAL IMPORTANCE.  THE PURPOSE OF SECTION 1.12(d) IS TO ENSURE THAT THE CLIENT WILL MAXIMIZE THE DEDUCTION.]
1.13	LLC’s Annual Accounting Period
The LLC’s annual accounting period for financial and tax purposes shall be the calendar year.
1.14	LLC’s Accounting Method
(a)	Use of Federal Income Tax Definitions, Etc.
In computing its income, deductions and other tax and financial items, the LLC shall use federal income tax definitions and rules to the extent that these definitions and rules are available under applicable federal tax authorities.
(b)	Cash [ACCRUAL, ETC.] Basis for Recognizing Income, Etc.
In determining when to recognize income, expenses and other tax items the LLC shall use the cash [OR ACCRUAL OR OTHER] basis. 
[AS READERS WILL KNOW,  UNDER THE CASH METHOD OF ACCOUNTING, REVENUE IS RECOGNIZED IN THE PERIOD IN WHICH IT IS RECEIVED AND EXPENSES ARE RECOGNIZED IN THE PERIOD IN WHICH THEY ARE ACTUALLY PAID, WHILE UNDER THE ACCRUAL METHOD OF ACCOUNTING, REVENUE AND  EXPENSES ARE RECOGNIZED IN THE PERIOD IN WHICH THEY OCCUR.].
1.15	Effect of LLC Act
Except as otherwise provided in this Agreement or by law, the business and internal affairs of the LLC shall be governed by the LLC Act as in effect from time to time.
1.16	Relation of Agreement to Articles
If there is any conflict between this Agreement and the Articles, the Agreement shall prevail and the member shall cause the amendment of the Articles to be consistent with the Agreement.
1.17	Member’s Right to Reimbursement of Expenses
If the member reasonably incurs an expense on behalf of the LLC in connection with the LLC’s formation or otherwise and reasonably documents this expense to the LLC, the LLC shall reimburse the member for this expense as promptly as reasonably possible after receiving this documentation.
[THE PURPOSE OF SECTIONS 1.18 THROUGH 1.20 BELOW IS TO PROMPT INDIVIDUALS FORMING LLCs TO CONSIDER WHOM THEY SHOULD CHOOSE AS THEIR ACCOUNTANTS, PRINCIPAL TAX ADVISERS AND PRINCIPAL LAWYERS.  HOWEVER, WHETHER OR NOT THEY HAVE MADE THESE CHOICES, CLIENTS MAY PREFER TO DELETE THESE SECTIONS.]
1.18	The LLC’s Accounting Firm
The LLC’s accounting firm shall be [NAME OF ACCOUNTING FIRM].
1.19	The LLC’s Principal Tax Adviser
The LLC’s principal tax adviser shall be [NAME OF TAX ADVISER].
1.20	The LLC’s Principal Lawyer [or Law Firm]
The LLC’s principal lawyer shall be [NAME OF LAWYER OR LAW FIRM].
1.21	Business Plan
In connection with the member’s review of this Agreement, the member shall prepare a business plan for the LLC’s business, and the member shall update this plan annually.
[BUSINESS PLANS CAN BE USEFUL TO MANY BUSINESSES, AND YOUR CLIENT MAY FIND SUCH A PLAN TO BE USEFUL.  HOWEVER, IF THIS IS NOT THE CASE, OR IF YOUR CLIENT IS CONCERNED ABOUT HAVING TO UPDATE THE LLC’S BUSINESS PLAN ANNUALLY, YOU SHOULD AMEND OR DELETE THE ABOVE SECTION.]
1.22	The LLC’s Community Responsibilities
To the maximum reasonable extent, the member shall perform the member’s services to and for the LLC in compliance with the LLC’s professional and other responsibilities to its community.
[SECTION 1.22 MAY BE USEFUL IN PROMPTING YOUR CLIENT TO IDENTIFY AND RECORD WHAT YOUR CLIENT BELIEVES TO BE THE CLIENT’S LLC’S COMMUNITY RESPONSIBILITY.  OTHERWISE, YOU SHOULD DELETE THE SECTION.]
1.23	The Member’s Use of the LLC’s Property
The member shall use property of the LLC for personal purposes only on arm’s-length terms, including, where appropriate, rental terms.
[YOU SHOULD EXPLAIN TO YOUR CLIENT THAT THE PURPOSE OF THE ABOVE SECTION IS TO SUPPORT THE VALIDITY OF YOUR CLIENT’S STATUTORY LIABILITY SHIELD UNDER THE GOVERNING LLC ACT AND TO REBUT ANY USE OF THE ALTER EGO THEORY AGAINST YOUR CLIENT.  HOWEVER, IF THE CLIENT STATES THAT HE OR SHE IS UNLIKELY TO COMPLY WITH THE SECTION, YOU SHOULD STRIKE THE SECTION.]
Section 2	MEMBER’S CONTRIBUTION TO THE LLC
2.1	Contribution—Definition
For purposes of this Agreement, a contribution shall mean any cash or property, or services rendered, or a promissory note or other obligation to contribute cash or property or to perform services that a person transfers or provides or promises to transfer or to provide to the LLC in exchange for the person’s LLC interest (as defined in Section 2.2(a)) and the person’s other membership rights (as defined in Section 2.2(b)).
2.2	LLC Interest and Membership Rights—Definitions
For purposes of this Agreement:
(a)	LLC Interest.
The term “LLC interest” shall mean the right of the member to receive allocations of LLC tax items (as defined in Section 1.13(a)) and to receive distributions of LLC profits and other LLC assets.
(b)	Membership Rights.
The term “membership rights” shall mean the totality of the member’s rights as a member.  These rights shall include the member’s (i) economic rights, including the member’s LLC interest; and (ii) the member’s management rights, including voting rights and agency rights.
2.3	The Member’s Contribution in Exchange for Membership Rights
The member’s contribution to the LLC in exchange for the member’s membership rights shall be as set forth in the attached Exhibit B.
[YOU SHOULD ENSURE THAT YOUR CLIENT CONTRIBUTES ENOUGH TO THE LLC TO CONSTITUTE “ADEQUATE CAPITALIZATION” OF THE LLC FOR ANTI-VEIL-PIERCING PURPOSES.]
[IF THE MEMBER WILL MAKE A CONTRIBUTION OF A SPECIFIED NUMBER OF DOLLARS UPON THE LLC’s FORMATION WITH NO CONTRIBUTION INSTALLMENT ARRANGEMENTS AND NO CONTRIBUTION OF PROPERTY OR SERVICES, YOU MAY WANT TO SO PROVIDE IN THIS SUBSECTION, AND YOU MAY WISH TO DELETE EXHIBIT B FROM THIS AGREEMENT.]
2.4	Record of Contribution
Promptly after making the above contribution, the member shall file in the LLC’s records one or more documents, such as photocopies of cancelled checks, documentary evidence of bank transfers, or photocopies of executed bills of assignment, showing that the member has made the contribution.
2.5	No Duty to Make Additional Contributions, Etc.
The member shall have no duty to make any contribution to the LLC except as provided in Section 2.3 of this Agreement, and no cash or property of any person shall be deemed to be a contribution to the LLC unless specifically recorded as such in the LLC’s written records.
Section 3	ALLOCATIONS AND DISTRIBUTIONS
3.1	Definitions
As used in this Agreement:
(a)	Allocation.
An allocation to the member means an accrual of a tax item of the LLC (as defined in Section 1.31(a)) to the member on the books of the LLC.
(b)	Distribution.
A distribution means a transfer of the LLC’s cash or other assets from the LLC to the member by check, bill of assignment or otherwise that is not (i) compensation to the member by the LLC for services rendered by the member to or for the LLC; or (ii) a reimbursement by the LLC to the member for expenses incurred by the member for the LLC.
3.2	Member Has Sole Right to Allocations and Distributions
Only the member shall be entitled to receive allocations and distributions.
3.3	Distributions by the LLC
Subject to Sections 3.4 and 3.5, the LLC shall make distributions to the member at such times and in such amounts as the member may determine from time to time in the member’s discretion.
3.4	Tax Distributions
Subject to Section 3.5, the LLC shall make distributions (“tax distributions”) to the member at such times and in such amounts as to enable the member to pay the member’s federal and other taxes on the LLC’s taxable income on time and in full.
3.5	Wrongful Distributions
The LLC shall make no distribution to the member to the extent that, at the time the distribution is made, the distribution will be a wrongful or unlawful distribution under the LLC Act or other applicable law.
Section 4	LLC MANAGEMENT
4.1	Decision-Making
Except to the extent of any delegation of the manager’s management authority under Section 1.8, the manager, in the member’s discretion, shall have the exclusive right, power and authority to make decisions relating to the management of the LLC and otherwise to conduct its business and internal affairs.
4.2	Member’s Fiduciary Duties
The member shall have fiduciary duties of care and loyalty toward the LLC.
4.3	Manager’s Responsibility to Obtain Tax Identification Numbers, Etc.
Promptly after the LLC is formed, the member shall do the following:
(a)	Tax Identification Numbers.
The member shall obtain for the LLC a federal tax identification number and any necessary state tax identification numbers.
(b)	Bank Accounts, Etc.
The member shall open any necessary bank accounts for the LLC and shall maintain this account and the records of the LLC entirely separately from the member’s personal account and records.
(c)	Insurance.
The member shall obtain on commercially reasonable terms insurance policies covering all reasonably foreseeable LLC insurable risks.
(d)	Miscellaneous.
The member shall do all other things necessary or useful in connection with the commencement of the LLC’s business.
4.4	Signing of Contracts, Etc.
Except to the extent of any delegation of the manager’s management authority under Section 1.8, the manager, in the manager’s discretion, shall have the exclusive right, power and authority to sign contracts on behalf of the LLC and otherwise to bind the LLC with third parties.
4.5	Manager’s Duty to Report to Member
The manager shall promptly report to the member all significant actions taken by the manager as the LLC’s manager, and shall make no major decision affecting the LLC except after consulting with the member about the matter.
4.6	No Duty to Record Decisions, Etc.
Neither the member nor the manager shall have a duty to record in writing or otherwise any decision in their capacity as member or manager of the LLC, and any failure by them to make any such record shall not impair the validity of any such decision.
4.7	Compensation and Fringe Benefits
The LLC shall provide compensation and fringe benefits to the manager for the manager’s services to and for the LLC as determined by the member from time to time in the member’s discretion.
[YOUR CLIENTS SHOULD BE AWARE THAT FOR FEDERAL TAX PURPOSES, INDIVIDUALS WHO ARE MEMBERS OF SINGLE-MEMBER LLCs AND ARE SUBJECT TO FEDERAL INCOME TAXATION AS SOLE PROPRIETORSHIPS MAY NOT DEDUCT FOR FEDERAL TAX PURPOSES AMOUNTS THEY BOOK AS COMPENSATION TO THEMSELVES.  HOWEVER, THIS FEDERAL RULE MAY NOT APPLY FOR STATE TAX PURPOSES.]
Section 5	TRANSFERS AND PLEDGES OF MEMBERSHIP RIGHTS
5.1	Transfers of Membership Rights
(a)	Transfers—in General.
The member, in the member’s discretion, may transfer (whether by sale, gift, bequest or otherwise) all or any part of the member’s membership rights, including economic and non-economic rights, to any person at any time.  The member may make any such transfer under any terms and conditions that the member deems appropriate.
(b)	Transfer upon the Member’s Death.
Upon the death of the member, the member’s membership rights shall immediately and automatically pass in accordance with the member’s will or other testamentary instruments, or, in the absence of any such instruments, under applicable laws of descent and distribution.
[TO AVOID PROBATE, THE MEMBER MAY WANT TO PROVIDE THAT TRANSFERS OF THE MEMBER’S MEMBERSHIP RIGHTS UNDER THE ABOVE PROVISIONS SHALL BE UNDER THE UNIFORM TRANSFER ON DEATH SECURITY REGISTRATION ACT OR SIMILAR LEGISLATION AS IN EFFECT IN THE MEMBER’S STATE.]
5.2	Admission of Additional Members
Whether additional persons shall be admitted as members of the LLC shall be determined by the member in the member’s discretion.  Any such admission shall be made in accordance with Section 1.11.
5.3	Pledges
The member shall have discretion to pledge all or any part of the member’s membership rights to any person at any time as collateral for any debt of the member.  The member may make any such pledge under any terms and conditions that the member deems appropriate.
Section 6	DISSOCIATION OF THE MEMBER
6.1	Dissociation— Definition
The dissociation of a member shall mean the termination of all of the member’s membership rights in the LLC.
6.2	Events of Dissociation of the Member
The member shall cease to be a member of the LLC only upon the member’s death, the transfer of all of the member’s membership rights or the cessation of the LLC’s existence.  The member shall not cease to be a member for any other reason, including:
(a)	A judicial declaration that the member is incompetent;
(b)	The member’s bankruptcy; or
(c)	The member’s assigning of the member’s entire LLC interest to another person.
6.3	The Member’s Death
Upon the member’s death, the member’s membership rights shall pass in accordance with Section 5.1(b).
Section 7	LLC RECORDS AND INFORMATION
(a)	Records and Information Required by LLC Act.
The LLC shall compile and shall maintain at its principal place of business all records and information that the LLC Act requires the LLC to compile and maintain.
[THE MEMBER MAY WANT TO SPECIFY IN THIS AGREEMENT THE RECORDS REQUIRED TO BE MAINTAINED BY THE LLC UNDER THE GOVERNING LLC ACT.  COMPLIANCE WITH SECTION 7(a) MAY BE IMPORTANT TO THE CLIENT IN SEEKING TO AVOID VEIL-PIERCING.]
(b)	Other Records.
The LLC shall maintain records and books of account concerning its business in accordance with financial or other record-keeping standards normally applicable to business organizations generally similar to the LLC in size and activities.
Section 8	DISSOLUTION OF THE LLC, ETC.
8.1	LLC’s Dissolution, Winding-Up and Liquidation— Definitions
For purposes of this Agreement:
(a)	Dissolution.
The dissolution of the LLC shall mean the cessation of its normal business activities and the beginning of the process of its winding-up and liquidation.
(b)	Winding Up.
The winding-up of the LLC shall mean the process of concluding its existing business activities and internal affairs and preparing for its liquidation.
(c)	Liquidation.
The liquidation of the LLC shall mean the sale or other disposition of its assets and the distribution of its assets (or of the proceeds of the sale or other disposition of its assets) to its creditors and to the member.
8.2	Dissolution, Etc., of LLC
(a)	Right of Member to Dissolve LLC, Etc.
Subject to any applicable provisions of the LLC Act, the member may dissolve, wind up and liquidate the LLC and terminate its legal existence at any time and upon any terms that the member may determine.
(b)	Termination of Legal Existence of LLC.
The legal existence of the LLC shall be terminated on the the effective date of the certificate of cancellation of the LLC’s Articles as filed with the Secretary of State [OR OTHER APPROPRIATE FORM AND STATE OFFICIAL].
(c)	Liquidating Distribution of LLC Property.
Immediately upon the cessation of the legal existence of the LLC, the property of the LLC shall be deemed to be distributed to the member and to become the property of the member as an individual, subject to the rights of any existing creditors of the LLC.
Section 9	TERM AND TERMINATION OF THIS AGREEMENT
The term of this Agreement shall begin on the Effective Date (as defined in Section 1.3) and shall end upon the earlier of:
(a)	The date on which the LLC ceases to exist as a legal person under the LLC Act; and
(b)	The date which the member determines to be the date of termination of the Agreement.
Section 10	MISCELLANEOUS PROVISIONS
10.1	Entire Agreement
This Agreement contains the entire agreement between the parties concerning its subject matter, and it replaces all prior agreements between them concerning its subject matter.
10.2	Amendments
No amendment of this Agreement or of the Articles shall be valid unless it is set forth in a writing signed by the parties.
10.3	Governing Law
This Agreement shall be governed exclusively by the laws of the State of [STATE] (exclusive of its laws relating to conflicts of law).
10.4	Captions
Captions in this Agreement are for convenience only and shall be deemed irrelevant in construing its provisions.
10.5	Incorporation of Articles and Exhibits
The Articles and all exhibits referred to in this Agreement are hereby incorporated into the Agreement and made integral parts of it.
10.6	“Discretion,” “Including,” and “Person” — Definitions
As used in this Agreement:
(a)	Discretion.
“Discretion” shall mean absolute discretion.
(b)	Including.
“Including” and similar terms shall denote a partial definition.
(c)	Person.
“Person” shall mean a natural person and any kind of entity.

[THIS PAGE ENDS HERE.  THE PARTIES’ SIGNATURES ARE ON THE NEXT PAGE.]

SIGNATURES AND DATES
In witness of their acceptance of the terms and conditions of this LLC operating agreement, the parties, by themselves or by their duly authorized representatives, have signed and dated this Agreement as follows:

_______________________________________________________________________
[NAME OF MEMBER]	 (In the member’s capacity as the LLC’s member)	(Date)

________, LLC

By:	_________________________________________________________________
[NAME OF MEMBER]	 (Intending to bind the LLC)				Date)

EXHIBIT A
ARTICLES OF ORGANIZATION 
[OR OTHER APPROPRIATE OFFICIAL DOCUMENT NECESSARY TO FORM AN LLC UNDER THE GOVERNING LLC ACT]
(ATTACHED)

EXHIBIT B
MEMBER’S CONTRIBUTION TO THE LLC
In exchange for the member’s rights as a member of the LLC, the member shall promptly make the following contribution to the LLC in accordance with the terms and conditions set forth in this exhibit:

[TO BE COMPLETED]

[IF THE MEMBER PROVIDES FOR A DOLLAR CONTRIBUTION IN SECTION 2.3, THIS EXHIBIT SHOULD BE DELETED.]

EXHIBIT C
EMPLOYMENT AGREEMENT

(ATTACHED)