A South Dakota LLC Operating Agreement, in simpler terms, is a blueprint for your LLC that creates a clear framework for its operation. Picture it as a custom guidebook that sets the rules for running your business, including ownership interest, decision-making procedures, and succession planning.
Under South Dakota's LLC laws, your operating agreement will outline crucial aspects like member roles, decision-making processes, and methods to address disputes - offering a clear roadmap to prevent misunderstandings in the future.
No, it's not legally required in South Dakota under § 47-34A-103. 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 South Dakota operating agreements, including:
Here are some key components that are typically included in a South Dakota LLC operating agreement:
In this section, we'll cover the common provisions and provide sample language for each to guide you.
You should already know the name of your LLC, as it is what you named it when you filed your LLC formation documents with your organizing state. However, you also want to clarify the purpose of your LLC. It doesn't have to be overly specific; in fact, keeping your statement general allows you to take on new ventures without refiling.
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 section indicates whether your LLC will be member or manager-managed and outlines the rights and responsibilities of each member. It covers aspects like capital contributions, voting rights, and management structure. While this may seem redundant as the only member, it is essential for establishing 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.
A registered agent is responsible for receiving and handling important documents on behalf of your company. While some LLC operating agreements include this information, it's not strictly necessary because you list this on your formation documents filed with your organizing state.
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.
Consider the "term of an LLC" as the lifespan of your Limited Liability Company. It's the intended duration of the LLC, as described in your formation documents. Many business owners create LLCs intending to operate them indefinitely, but you also have the option to specify a fixed period or end date.
In most states, LLCs are considered "perpetual" by default, meaning they can exist for as long as you want. In South Dakota, most LLCs choose a perpetual duration.
The duration of the Company will be perpetual.
Capital contributions refer to the funds, property, or services you offer to your LLC to initiate its operations. Consider it the initial investment you make to get your business up and running. For single-member LLCs, capital contributions come entirely from you, the sole owner, granting you the flexibility to decide how much money or assets you want to invest in your business.
Properly documenting your capital contributions is crucial for a clear understanding of your business's financial structure and providing necessary information for tax purposes.
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
Indemnification provisions in an LLC's Operating Agreement serve as a safety net, shielding the company's members from specific costs associated with legal issues that could emerge from their work for the company. This implies that the LLC will cover any legal fees or damages if a member faces a lawsuit related to their duties for the business.
The agreement should explicitly state when and under which circumstances the LLC will offer this protection, along with any exceptions. Indemnification usually doesn't cover intentional wrongdoing or severe negligence. It's essential to tailor these terms to your business's particular risks, ensuring appropriate protection.
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.
Your South Dakota LLC can be taxed as a sole proprietorship, partnership, S corporation, or C corporation. How your LLC is taxed depends on the number of members and the tax status your business chooses with the IRS.
Your LLC's operating agreement should include sections related to tax status, discussing your chosen tax status, how to change it, and how you manage tax returns and allocations (when applicable). This helps your LLC plan for handling business finances, including profits, losses, dividends, and taxes. The goal is to provide a clear roadmap for managing any tax-related issues that may emerge in your business.
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.
Your profit and loss distributions clause simply states when your LLC will distribute its earnings. This isn't as important for single-member LLCs. However, for multi-member LLCs, it's crucial to indicate when, what's required, and how the distributions will happen.
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.
What do you do when you need to alter any terms in your LLC? It's straightforward - you follow your LLC amendment clause. For single-member LLCs, this is much simpler. For multi-member LLCs, you'll want to consider voting percentages and required steps to amend the operating agreement carefully.
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.
LLCs usually aren't required to follow corporate formalities - that's more a corporation thing. However, in some cases, not adhering to formalities could lessen the chances of maintaining your corporate veil. For this reason, it's beneficial to include a waiver of all required 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.
Dissolution is the plan for unexpected circumstances. It walks you through how to wind down your LLC and stipulates who will retain control of the LLC in the event of your passing or departure. It's like having a guidebook detailing "what to do if" situations for your business, helping you ensure an orderly exit or transfer.
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 for your operating agreement is the date the agreement becomes active. Another way to see it — it's the start date of the agreement.
Good news! Unlike your Articles of Organization or Certificate of Formation (depending on your home state), your operating agreement is an internal document kept in your company's records. So you don't need to file it anywhere. Just sign it and keep a copy for when you need to refer back to it. Simple as that!
As business owners, we often dream of expanding our businesses beyond what we can manage by ourselves. If you find yourself in that exciting situation and are ready to add another member to your LLC, you'll need to redo the paperwork as per the agreement between you and your new partner.
Most likely, you'd want to create an entirely new agreement because a multi-member operating agreement is significantly different from a single-member operating agreement. It's like preparing a new recipe when adding a fresh ingredient; you'd want to follow the new instructions to accommodate the change.
Just remember, it's a fantastic position to be in, and having your updated operating agreement will ensure everyone is on the same page, allowing your business to continue thriving. Now, go make the most of the opportunities that lie ahead for your newly enhanced LLC!
