Forming a legally sufficient LLC requires the creation of two simple documents: 1) Articles of Organization, which are filed with the sate and 2) LLC Operating Agreement or Partnership Agreement which all owners or partners sign, however, this document is not filed with the sate.
Articles of Organization: The Articles of Organization (in some states this document is called a certificate of organization or certificate of formation) is an organizing document that is filed with the Secretary of State (or in some states the LLC filing office). An LLC comes into existence when its Articles of Organization are formally filed and all fees are paid. Any person can file the Articles of Organization for a Minnesota LLC. This person does not need to be a member of the LLC. The Articles of Organization typically contain basic organization information about the LLC, such as:
• The name of the LLC
• The name and addresses of its members and/or managers and its registered agent
• The registered agent’s address (where legal papers can be sent by the state and by persons serving legal process on the LLC)
For the majority of LLCs, no additional information is required in the Articles of Organization.
LLC Operating Agreement or Partnership Agreement: The LLC Operating Agreement (or partnership agreement) is the core business and ownership document of an LLC. The LLC Operating Agreement reflects the agreement among the members with respect to the ownership, management, and general affairs of the LLC and governs the relationship among the members of the LLC. This document is referred to when profits are going to be distributed or issues concerning the management of the LLC need to be resolved. The LLC Operating Agreement does not have to be filed with any state agency. However, you may wish to file a copy of this document with our office.
By having an LLC Operating Agreement, the members will be provided with a clear set of rules that all members have agreed upon. This greatly reduces the likelihood of a future disagreement between members. In addition to greatly reducing likelihood of financial and management misunderstandings, The LLC operating agreement or partnership agreement assures your business is governed by your own rules, not default rules created by your state.
The LLC Operating Agreement generally specifies, among other things:
• The name of the business
• The official business address
• The name of the members
• The business purpose of the LLC
• Ownership interests
• Capital accounts
• The withdrawal of Members
• The amount of money or property contributed by the members
• Additional capital contributions
• How disputes among members will be handled
• How the business will be managed
• Conduct of meetings
• Rights, duties, and liabilities of the members
• Rights, duties, and liabilities of the managers
• Indemnification of managers
• How cash will be distributed to the members
• How profits and losses will be allocated to the members
• Under what circumstances will members be permitted to transfer their interest to a third-party
• Will the members be granted a “right of first refusal” or a “right of first offer”
• Will the members be granted “Drag-Along” and/or “Tag-Along” rights
• Will the members be provided with “tax distributions”
• The duration of the LLC
• Books and records
• Arbitration/Court of Law
• Governing Law
Every state including Minnesota allows an LLC to adopt an Operating or Partnership Agreement and will give the agreement full force and effect in court. The Operating Agreement will only be enforced against the persons who are parties to the agreement. Therefore, it is extremely important that all members of an LLC sign the Operating Agreement.