Although Oklahoma state law does not require Limited Liability Companies (LLCs) to have an operating agreement, it’s highly recommended that you have one in place to set the rules and guidelines for your organization.
Here, we'll highlight the benefits of having an Oklahoma LLC operating agreement and explain what must be included.
What Is an Oklahoma LLC Operating Agreement?
An operating agreement is a written contract that lays the foundation for your organization and establishes the rules for conducting business, and it details how responsibilities and profits are divided among LLC members.
Since not all businesses are the same, an operating agreement is created for a business's specific needs. This is accomplished by clearly outlining the operating terms of the LLC and getting approval from each member, which makes the document legally binding.
Why Do I Need an Oklahoma Operating Agreement for My LLC?
In addition to defining your business's guidelines, an LLC operating agreement can also help avoid internal disputes and disagreements amongst LLC members and bolster your LLC liability protection status.
Let’s take a deeper look at the specific ways an Oklahoma LLC operating agreement can be useful and why it's considered one of the most critical documents for an LLC to have:
Protect Your LLC Status
As the name suggests, an LLC protects its members’ personal property and assets by providing limited liability status. An operating agreement reinforces this protection should your business face a lawsuit.
Safeguard from State Laws
A fine-tuned operating agreement allows you to run your business the way you want while avoiding Oklahoma's state default statutes for governing an LLC.
Without an operating agreement, the business will be subject to Oklahoma's state default rules. Since these are general rules that do not take into account your LLC's specific needs, odds are that they may not be a good fit for your organization. For example, default state rules may say that income is distributed equally among members. An operating agreement can spell out that income is to be distributed according to each member's financial investment instead.
Open Business Accounts
Loans, credit lines, and business checking accounts are the lifeblood of an LLC. If you plan on opening a bank account or working with other financial organizations, you’ll need to provide proof that you own an LLC.
Your operating agreement is a legally binding document that lists all LLC members, which means it can be used as proof of business ownership. Financial institutions such as banks and even title companies may require this document before you can open an account or purchase a property.
Formalize Verbal Agreements
A written operating agreement — especially once signed by all LLC members — helps to avoid ambiguity or confusion. Members can rest assured that all verbal agreements have been clearly defined in writing to highlight everything from profit distribution to meeting frequency and even how to remove (or buy out) a member.
Outline Business Details
Write down everything about your business details in your operating agreement, including operation terms, member responsibilities, and distribution of profits and liabilities. This keeps LLC members on the same page and helps you avoid potential disputes. Have members sign off on processes, regulations, and management styles so you can all stay focused on a common mission — working together for the organization's benefit.
An operating agreement may also help you avoid any “sticky” situations by including instructions for adding or removing members or even dealing with the death of a member and the allocation of their stake in the LLC.
What to Include in Your Oklahoma LLC Operating Agreement
Operating agreements outline the management, function, and finances of your business.
1. Business Name and Purpose
Your Oklahoma operating agreement should begin with the basic (and essential) information about your LLC:
- Name of the LLC
- Date the LLC was formed
- Purpose of the LLC
- Type of business
- Registered Agent information
2. List of LLC Members
Whether it’s a single-member LLC or one with multiple members, the names and contact information of all the owners will need to be included in the operating agreement.
3. LLC Member Ownership
Each member’s interest in the business should be listed, showing a clear ownership breakdown by percentage. This breakdown can consist of an even distribution of each stakeholder’s share in the business or a percentage calculated by the assets and funds contributed to the LLC. For a single-member LLC, ownership should also be presented at 100%.
4. Member Selection and Member Responsibilities
Each LLC will have its own management structure for appointing members to lead meetings, take minutes, or send notifications for upcoming events. Some members may be more involved than others. Include a description of these roles, the tasks involved, and how they are attained.
5. Liability Protection Statement
Formally establishing your business as an LLC gives you an added layer of protection with limited liability status. Include your LLC status in your Oklahoma LLC operating agreement to help add another layer of protection and reinforce this status. Adding this information will specify that the members are covered under the umbrella of liability protection.
6. Management Structure
Your operating agreement will need to spell out the management of the LLC, whether member-managed by the LLC members or manager-managed by an appointed manager or managers that are independent of the LLC and do not hold any ownership stake in the organization.
7. Meeting Rules and Frequency
Set rules on how meetings are held, how often they are held, and any special events or additional (unscheduled) meetings to ensure LLC members stay involved and are able to discuss both routine matters and unexpected events. This clause should also set up expectations regarding meeting attendance and how to deal with non-compliant members.
8. Duration of the LLC
How long will the LLC last? Although nobody has a crystal ball, this section will highlight two possible scenarios: Either the members will dissolve the LLC, or the state of Oklahoma will shut it down.
9. Voting Rights
How will voting rights be determined? Will they be based on ownership interest? For example, if an LLC has nine members but one member owns 20%, do they get the equivalent of two votes?
This section should also include how votes are cast, whether members need to be present in a meeting to cast a vote, and whether there are any circumstances where a vote can be cast by proxy or sent in another way, such as by email.
10. Distribution of Profits
Assuming the business is earning money and turning a profit, how often will these profits be distributed? Will this be done quarterly, annually, or following a different schedule set by the LLC members? What is the distribution of profits? Will it be equal among the members or calculated by the percentage of ownership?
11. Addition and Removal of Members
How are new members added? What are the requirements for joining? Also, what happens if an existing member wants to exit the LLC — or, worse yet, conducts actions that deserve removal from the organization?
12. Transfer of Membership and Succession Planning
This portion takes into account a member’s death and what happens to their interest in the business, the process involved in the transfer, and how ownership changes are made.
13. Non-Compete Clause
LLC members should not work for or invest in competing companies. This causes a clear conflict of interest and can result in the unintended (or intended) sharing of proprietary information.
14. Tax Treatment and Bookkeeping
The agreement should outline a plan for how the LLC will file taxes. Will it be as an S Corp, corporation, partnership, or sole proprietorship? The LLC members should also have clear practices and procedures when it comes to bookkeeping and who will be responsible for maintaining the accounting records of the LLC.
15. Modification of the Operating Agreement
No matter how much planning occurs at the early stages of your business, things change. Nothing's set in stone, and your business should be able to adapt according to the needs of the LLC, the market, general economic conditions, or the direction of the company.
Your Oklahoma LLC operating agreement is a “living” document that can be modified. Rules on how and when to amend the operating agreement will ensure the business successfully evolves to meet whatever challenges it may face. It’s also a good idea to review the operating agreement annually to ensure all the clauses are up-to-date.
Not everything lasts forever, and that’s true when it comes to business. With that in mind, rules need to be established on how to dissolve the business. Will it be done by vote? Will it need to be unanimous or by majority? How will assets be distributed or debts paid?
17. Severability Provision
Laws can change. This clause allows you to remove or “severe” any clause in the operating agreement that may not be enforceable due to new government regulations that would essentially make it invalid.
18. Unique Information
In addition to the list provided above, your operating agreement should include clauses pertinent and specific to your LLC. It’s always a good idea to have a lawyer review the document before LLC members sign off.
FAQs on Oklahoma Operating Agreements
What Is the Difference Between an LLC Agreement and an Operating Agreement?
An LLC agreement and an operating agreement are the same thing. Though the name may be used interchangeably, both these agreements are contracts that establish the rules of your business and how it is managed and operated internally.
What Is the Difference Between an Operating Agreement and an LLC's Articles of Organization?
An LLC is a legal business structure that is formed by filing Articles of Organization with the Secretary of State. Without submitting the Articles of Organization with the state and receiving approval, your LLC cannot legally conduct business in the state.
While the Articles of Organization is an “external” document filed with the state, the operating agreement (or LLC agreement) is an “internal” document that can be kept with the LLC members. And although an operating agreement is not required under Oklahoma law to run an LLC in the state, it’s recommended that you have one in place for all the reasons highlighted earlier in this article.
What Is a Single-Member Operating Agreement in Oklahoma?
An LLC with a single member — or sole owner — is commonly referred to as a single-member LLC. Just like multi-member LLCs, a single-member LLC should also have an operating agreement.
Although this type of agreement may not be as detailed as the multi-member operating agreement, it should include a clause on how to add new members, assuming the possibility that the organization will grow.
Should I Write My Own Operating Agreement?
Although you can write your own operating agreement, it may help to use a template to ensure all major clauses are covered. You can fine-tune the agreement to address specific details that may be integral to your LLC.
Operating agreements do not need to be notarized or created by a lawyer, but it wouldn’t hurt to have a lawyer look it over before LLC members sign and approve.
Do I Need to File My Operating Agreement With the State?
There is no need or requirement to submit your operating agreement to the Oklahoma Secretary of State. Your operating agreement is an “internal” document that does not need to be approved by any state office or institution other than your LLC members, who should also have a copy of the finalized and approved document for their reference and records.
Get Started on Your Operating Agreement Today
A well-planned and detailed operating agreement will not only help manage and organize your LLC, but it will also reinforce the limited liability status of your business, adding another layer of protection. Whether it’s a state requirement or not, this important document protects your LLC from Oklahoma's default governing rules.
If you’re ready to get started on your LLC operating agreement for Oklahoma, Incfile can help. If you form your business with us, an operating agreement is included when you select our Gold or Platinum package. You can also purchase an operating agreement template from us separately, ensuring this key contract becomes your LLC’s foundational document.