Alabama LLC Operating Agreement
Every Alabama LLC should have an operating agreement in place.
While not legally required by the state, having a written operating agreement will set clear rules and expectations for the management and operations of your LLC.
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Free Alabama LLC Operating Agreement Templates
We offer operating agreement templates for single-member LLCs and multi-member LLCs (including member-managed and manager-managed) as well as a customizable operating agreement tool.
Single-Member LLC Operating Agreement
Our single-member LLC operating agreement template was created for limited liability companies with only one member, where the sole member has full control over all affairs of the LLC and no other individuals have a membership interest in the company.
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Multi-Member LLC Operating Agreements
Our multi-member LLC templates are meant for LLCs with more than one member. There are two types available: manager-managed and member-managed.
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Create Custom Operating Agreement
Create a custom operating agreement using our free tool. Just answer a few basic questions, and the tool will develop an operating agreement for your new LLC.
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What Is an Alabama LLC Operating Agreement?
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An operating agreement is a legal document that outlines the ownership structure and operating procedures of an LLC.
Whether you are starting a single-member or multi-member LLC, your operating agreement should address all of the topics below. Some of these stipulations will not have much bearing on the actual operations of a single-member LLC, but are still important to include for the sake of legal formality.
- Organization: When the LLC was officially formed, who its members are, and how ownership is divided. Multi-member LLCs may utilize an equal ownership structure or assign various members different “units” of ownership.
- Management & Voting: Whether the LLC will be managed by its members or by an appointed manager, and how members will go about voting on business matters. Typically, each member has one vote, but you may wish to give some members more voting power than others. For more information on managing your LLC, read our Member-Managed vs Manager-Managed guide.
- Capital Contributions: The amount of money each member has invested in the business. This is also where you should establish an approach to raising additional funds in the future.
- Distributions: How profits and losses will be divided among the members. The most common option is to distribute profits evenly. If you want them divided a different way, this should be detailed in your operating agreement. For more information on the basics of LLC ownership, read our Contributions and Distributions guide.
- Changes to Membership Structure: How roles and ownership will be transferred in the event that a member leaves the company. It’s essential to lay out the process for buying out and/or replacing a member in the LLC’s governing document.
- Dissolution: Dissolution: If at some point all the members of your LLC decide you no longer wish to conduct business, you should officially dissolve it. Outlining the hypothetical process of dissolving your business is an important aspect of your operating agreement. To learn how to dissolve your Alabama LLC, read our Alabama LLC Dissolution article.
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Why Should I Have an Alabama LLC Operating Agreement?
No matter what type of Alabama LLC you're starting, you'll want to create an operating agreement. Here's why:
It’s recommended by the state. According to Alabama Business and Nonprofit Entities Code, Limited Liability Company Law of 2014 § 10A-5A-1.08, having an operating agreement is highly encouraged.
- It'll prevent conflict among your business partners. If you're starting a multi-member LLC, having an operating agreement will prevent misunderstandings amongst your team by setting clear expectations about each partner's role and responsibilities.
- It helps preserve your limited liability status. If you're the sole owner of a single-member LLC in Alabama, having an operating agreement will help to ensure your limited liability status is upheld by court officials, and add to your business's credibility as a whole.
The full text of the statute can be found below:
(a) Except as otherwise provided in subsections (b) and (c):
(1) the limited liability company agreement governs relations among the members as members and between the members and the limited liability company; and
(2) to the extent the limited liability company agreement does not otherwise provide for a matter described in subsection (a)(1), this chapter governs the matter.
(1) To the extent that, at law or in equity, a member or other person has duties, including fiduciary duties, to the limited liability company, or to another member or to another person that is a party to or is otherwise bound by a limited liability company agreement, the member's or other person's duties may be expanded or restricted or eliminated by a written limited liability company agreement, but the implied contractual covenant of good faith and fair dealing may not be eliminated.
(2) A written limited liability company agreement may provide for the limitation or elimination of any and all liabilities for breach of contract and breach of duties, including fiduciary duties, of a member or other person to a limited liability company or to another member or to another person that is a party to or is otherwise bound by a limited liability company agreement, but a limited liability company agreement may not limit or eliminate liability for any act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing.
(3) A member or other person shall not be liable to a limited liability company or to another member or to another person that is a party to or is otherwise bound by a limited liability company agreement for breach of fiduciary duty for the member's or other person's good faith reliance on the limited liability company agreement.
(4) A limited liability company agreement may provide that:
(A) a member or transferee who fails to perform in accordance with, or to comply with the terms and conditions of, the limited liability company agreement shall be subject to specified penalties or specified consequences; and
(B) at the time or upon the happening of events specified in the limited liability company agreement, a member or transferee may be subject to specified penalties or specified consequences.
(5) A penalty or consequence that may be specified under paragraph (4) of this subsection may include and take the form of reducing or eliminating the defaulting member's or transferee's proportionate interest in a limited liability company, subordinating the member's or transferee's transferable interest to that of non-defaulting members or transferees, forcing a sale of that transferable interest, forfeiting the defaulting member's or transferee's transferable interest, the lending by other members or transferees of the amount necessary to meet the defaulting member's or transferee's commitment, a fixing of the value of the defaulting member's or transferee's transferable interest by appraisal or by formula and redemption or sale of the transferable interest at that value, or other penalty or consequence.
(6) A written limited liability company agreement may supersede, in whole or in part, the provisions of Division C of Article 3 of Chapter 1.
(c) A limited liability company agreement may not:
(1) vary the nature of the limited liability company as a separate legal entity under Section 10A-5A-1.04(a);
(2) vary the law applicable under Section 10A-5A-1.05;
(3) restrict the rights under this chapter of a person other than a member, dissociated member, or transferee;
(4) vary the power of the court under Section 10A-5A-2.05;
(5) eliminate the implied contractual covenant of good faith and fair dealing as provided under Section 10A-5A-1.08(b)(1);
(6) eliminate or limit the liability of a member or other person for any act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing as provided under Section 10A-5A-1.08(b)(2);
(7) waive the requirements of Section 10A-5A-4.04(c);
(8) vary the law applicable under Section 10A-5A-4.06(c);
(9) reduce the limitations period specified under Section 10A-5A-4.06(d) for an action commenced under other applicable law;
(10) waive the prohibition on issuance of a certificate of a transferable interest in bearer form under Section 10A-5A-5.02(c);
(11) vary the power of a court to decree dissolution in the circumstances specified in Section 10A-5A-7.01(d) or in Section 10A-5A-11.09(e);
(12) vary the requirement to wind up a limited liability company's activities and affairs as specified in Section 10A-5A-7.02(a);
(13) vary the provisions of Section 10A-5A-8.01;
(14) vary the right of a member under Section 10A-5A-10.09; or
(15) waive the requirements of Section 10A-5A-11.02(b).
After Creating Your Alabama LLC Operating Agreement
Once you have finished your operating agreement, you do not need to file it with your state. Keep it for your records and give copies to the members of your LLC.
Following any major company event, such as adding or losing a member, it is a good idea to review and consider updating the operating agreement. Depending on how your operating agreement is written, it may require some or all of the members to approve an amendment to the document.
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Frequently Asked Questions
Yes. Although you won’t file your operating agreement with the state, Alabama highly recommends that you retain a signed and notarized operating agreement for yourself and all members of your LLC.
While it's a good idea to create an operating agreement before filing your Certificate of Formation, the state does not discourage LLCs from waiting until the formation process is complete. It's worth noting that some banks require you to submit an operating agreement in order to open a business bank account.
No. Operating agreements are to be retained by the LLC members. There is no need to file your operating agreement with the state.