Starting an LLC may involve filing articles of organization with the state and establishing internal ground rules for how your business should operate. Establishing your credibility as a legal entity is a part of the plan.
Every West Virginia LLC is encouraged, but not required, to have an operating agreement to safeguard the company’s operations, from organization to dissolution. It ensures that all LLC members understand their roles and responsibilities. This page guides you in making a West Virginia operating agreement.
On this page, you’ll learn about the following:
West Virginia LLC Operating Agreement Content
An operating agreement is a legal document detailing the LLC’s organizational structure and operational procedures. Topics not restricted to a single member or multi-member LLC will be covered. While these provisions might not influence day-to-day operations, they must be included for legal reasons.
- Ownership: The operating agreement details who the members are and how ownership is divided, be it a sole proprietorship or LLC. Sole proprietorship refers to a single person with total control over a business, also known as a single-member LLC. Multi-member LLC members can have either equal or varying ownership interests.
- Management: Your LLC could be member-managed or manager-managed. The former means members can decide regarding contracts with third parties; the latter means only designated managers can do so. Using “manager-managed” instead of “hands-on” can reduce administrative work. Management’s authority is also limited in the Operating Agreement.
- Voting: Define each owner’s voting rights and voting thresholds, such as a majority vote, supermajority vote, and unanimous consent. A variety of approvals are needed for each type of decision.
- Changes in Membership Structure: If someone leaves the company, how will roles and ownership be transferred? A member buyout and/or replacement procedure must be outlined in the LLC’s governing document.
- Contributions: All types of contributions are accepted. In order to fund their ownership interests, members will have to invest in the collective funds.
- Equity Splits: Determine equity for each member, taking into consideration things like their contributions, responsibilities, and fairness. Maintaining fairness in your equity split will help prevent future disagreements.
- Transfers: You may want to consider outlawing transfers of ownership interests without the consent of all owners. It’s always a good idea to include permitted transfers, such as first refusal, drag-along rights, tag-along rights, and estate planning transfers.
- Business Restrictions: To protect the privacy of the company, including confidentiality obligations. You may also ban the owners from owning competing businesses.
- Intellectual Property: Detail; the ownership of intellectual property created by members. Make sure all company-created intellectual property is owned by the company. You can find alternative ownership/license structures if necessary.
- Taxation: Determine how you will be taxed and plan accordingly. Remember, however, that you must file an LLC annual report and might be required a sales tax.
- Guaranteed Payments: Determine if any of the members should receive Guaranteed Payments, which are like a salary, particularly if your LLC is taxed as a partnership.
- Distribution & Dividends: Explain to all members how the funds will be allocated. A pass-through entity will impose tax distributions regardless of profit distributions.
- Dissolution: The LLC should be dissolved if all members elect to cease operations. It is important to identify how you will end your business in your operating agreement.
Note that the operating agreement, though not a legal requirement in most states, is vital in the operation of your LLC. Should your members have issues with the business, you can deal with it with guidance from the operating agreement.
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Developing an operating agreement could be tedious at times. Besides, since it deals with how your business operates, then it would be best to have professionals help you with it to make sure you get everything right. Getting help from registered agents would be your best bet. Here are three of our best LLC services that can provide you with registered agents to free you of worries:
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Importance of a West Virginia LLC Operating Agreement
Operating agreements in West Virginia aren’t required if there is an LLC exists. In general, most states need their businesses to sign an agreement in order that it will be easy to review the structure of their business. This is a step that is not required in West Virginia when you create the LLC. It won’t attract any penalties.
However, this is an essential step to ensure that the business, as well as its owners, are protected from any miscommunications. Here are a few reasons why you should write an LLC agreement.
- To safeguard the LLC Operating agreement defines the regulations and rules for the LLC. The operating agreement defines the rules of LLC. If members are unable or unwilling to follow the rules, the government will operate the LLC. The agreement will protect the LLC from government rules and provide other advantages.
- It makes the LLC look credible: If the investors are researching the companies, they always check out how professional the business is. The operating agreement makes the LLC professional. It indicates to the members that they are concerned about the company. They want all the regulations and rules to be legally binding. This provides the opportunity for more investors to invest in the business and this will lead to expansion.
- To verify the status of LLC LLCs, which are well-known for having restricted liability status can’t be misunderstood by the government if they’ve defined the term in their operating agreement. Because it is very easy to misunderstand a one-member LLC with a sole proprietorship, but an operating agreement could demonstrate that they are distinct.
- To resolve conflicts: There may be future conflicts concerning distributions and decisions. The operating agreement sets out the process, requirements as well as rules and guidelines for all members of the company. The operating agreement allows members to review quickly the terms of the agreement prior to when they start performing a task.
- LLC flexibility: Limited liability companies are designed to be flexible. Operating agreements are what allows these LLCs to be of such a nature. The operating agreement is an official document that gives the LLC the freedom to operate.
- To open bank accounts for business: Often, the owner will need a copy of the operating agreement. At the moment when a business does not have that, it will be difficult for the business to open an account with a bank.
In order to clearly state the purpose of a business as well as its ownership interests, a written operating agreement is strongly advised in West Virginia.
You and other members of the LLC will be unable to reach any agreements if you do not have an operating agreement. Even worse, your LLC must follow the state’s default operating conditions.
It is required by law in California, New York, Maine, and Missouri, but it is not in West Virginia. Although it is not legally required, creating a written agreement is strongly advised. You may self-notarize and distribute the documents.