Akin to a master plan specifically designed for your LLC, an Iowa LLC Operating Agreement, in simple words, sets up a well-articulated schema for managing your business operations. Visualize our friendly coffee catch-up where I break it down as your exclusive manual, sketching out the norms for how your business operates, covering aspects like dispensation of ownership, sequences in decision-making, and succession schemes.
Enshrined under Iowa's LLC laws, this agreement is where you'll document crucial details such as roles held by members, flow of decision-making, and reconciliation methodologies for disputes. It's akin to your business's roadmap, devised to eliminate possible misconceptions and keep your entrepreneurial journey progressing smoothly.
No, it's not legally required in Iowa under § 489.110. 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 Iowa operating agreements, including:
Here are some key components that are typically included in a Iowa LLC operating agreement:
We'll go through the common provisions and provide sample language for each to guide you.
At this point, you should know your LLC's name, as it's what you called it when filing your LLC formation documents with Iowa. Here, you also want to clarify your LLC's purpose. A generalized statement is suitable, allowing you to pursue 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.
In this section, you decide whether your LLC will be member or manager-managed. It also outlines each member's rights and responsibilities, such as capital contributions, voting rights, and management structure. Even for single-member LLCs, this section is essential for establishing your entity.
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 takes care of receiving and handling crucial documents on behalf of your company. Some LLC operating agreements include this, but it's not absolutely necessary. That's because you'll list your registered agent on the formation documents you file with Iowa.
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.
An LLC's duration reflects its lifespan. Described in your formation documents, the duration indicates how long your LLC should exist. While most business owners form LLCs with the intention to operate indefinitely, you can set a fixed period or end date for your LLC. In Iowa, the default position is perpetual, meaning your LLC can exist as long as you'd like.
The duration of the Company will be perpetual.
Capital contributions are the funds, property, or services you provide to your LLC to start its operations. It's like your initial investment to bring your business to life. For single-member LLCs, capital contributions come entirely from you, offering flexibility on how much money or assets you invest. Properly documenting capital contributions is vital for understanding your business's financial structure and 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 act as a safety net, protecting members from specific costs related to legal issues arising from their work for the company. Essentially, the LLC will cover any legal fees or damages if a member faces a lawsuit related to the business. The agreement should clarify when and under which circumstances the LLC offers this protection, along with any exceptions - for example, indemnification usually doesn't cover intentional wrongdoing or severe negligence.
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 Iowa LLC can be taxed in one of four ways: as a sole proprietorship, partnership, S corporation, or C corporation. The taxation depends on the number of members and the tax status your business selects with the IRS. Your LLC's operating agreement should address tax status, discussing your chosen tax classification, how to change it, and how to handle tax returns and allocations (if applicable). A clear roadmap for managing tax issues helps your LLC handle finances, profits, losses, dividends, and taxes.
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.
This clause indicates when your LLC will distribute its profits. It's not that important for single-member LLCs, but for multi-member LLCs, it's crucial to specify when, what's required, and how distributions will occur.
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.
Business is dynamic, and it's completely normal if you need to change a term in your LLC. This is where the LLC amendment clause comes in. For single-member LLCs, it is quite straightforward. But for multi-member LLCs, it requires a bit of planning. You'll need to consider factors such as voting percentages and requirements for amending the operating agreement.
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.
By their nature, LLCs usually aren't mandated to follow corporate formalities. Those protocols are more suited to corporations. However, skipping these formalities could risk maintaining your corporate veil. To avoid any missteps, it's a good idea to include a waiver of all 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.
Let's face it, there may be times when things don't go according to plan. Your dissolution clause is your go-to guide on how to wind up your LLC when the unexpected happens. It will also designate who will oversee the LLC in the event of your death or incapacitation.
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 is when your operating agreement officially kicks in. It's the point in time when your agreement starts to govern your LLC.
Think it needs to be filed like your Articles of Organization? No way! An operating agreement is an internal document that stays in your company's records. Just sign and keep it handy. No need for additional paperwork. Simple, right?
Growth is good! If your business starts to expand, and you need to bring another member onboard your LLC, you'll need to update some paperwork in line with your agreement with the new partner. Bear in mind you'll probably have to create an entirely new agreement. The terms and conditions for a multi-member operating agreement are quite different from a single-member operating agreement. But don't worry, with every new challenge in business comes an opportunity for growth and innovation.
