An amendment to an LLC operating agreement is an internal, written document that identifies which sections of the original Limited Liability Company (LLC) Operating Agreement will be modified or removed or new sections to be added.
Before creating the amendment, review the original operating agreement to ensure that the owners can amend it and if there is a time frame or limitation for creating an amendment. For example, the original LLC operating agreement might state that it:
- Cannot be amended; or
- Can only be amended by a unanimous vote of the owners; or
- Can be amended by a majority (simple, 2/3rds, etc.) vote of the owners; or
- Can only be amended after the first year (or other time frames) of operations; or
- Can only be amended in the fourth operating quarter of each business year.
Any limits or procedural requirements to amending an LLC operating agreement must be followed for the amendment to be legally binding.
How to Amend an LLC Operating Agreement?
You can amend an LLC operating agreement by using an amendment to an LLC operating agreement document.
You should make sure all members approve the changes, and you should ensure you follow the rules laid out in your operating agreement regarding amendments.
You do not need to file the amendment with the state unless you change your LLC’s managers or members. Just keep the amendment with your operating agreement as an internal document. Some states require that you file an annual report instead of an amendment when changing the members of your LLC.
Be aware that states vary on when and how to file an amendment for an LLC operating agreement and how much it may cost. If your state doesn’t have an annual or another reporting requirement, it’s likely you will have to file the form when the change occurs.
What Should an Amendment to an Operating Agreement Include?
A simple LLC Operating Agreement Amendment should generally have at least the following:
- The number of this amendment, i.e., the first, second, etc.
- Identification of the original owners
- Identification of the current owners
- The location of the business
- The provisions being amended or changed
- The provisions being eliminated or replaced
- The new provisions
- The date the amendments go into effect
- The signatures of the owners.
Additional details can be helpful in this document, including:
- Governing Law: which state’s laws apply in the event of a dispute
- Original Agreement: a copy of the original agreement should be attached to the amendment since the non-modified terms are still in full force and effect.
- Counterparts: when the owners cannot gather to sign the document, separate signature pages or counterparts may be used to complete the amendment process.
Amendment to LLC Operating Agreement Sample
Below you can find what an amendment to an LLC operating agreement typically looks like:
An Amended and Restated LLC Operating Agreement is an agreement that has been amended (changed) one or more times but is now restated with the amendments incorporated into the operating agreement. This document helps to streamline the document and clarify its provisions.
When an LLC Amendment is Needed
Owners should amend their LLC Operating Agreement when its terms no longer reflect its members’ responsibilities, business operations, or asset contributions. Over time, the roles of specific owners are likely to change due to growth, shift in business focus, or skill set. A more formal, hierarchical structure may be best for managing day-to-day operations and long-term development as the business grows. Also, some owners may invest additional capital into the company to support operations, and their individual investments must be acknowledged and protected. As these situations arise, an amendment to the original agreement is necessary.
You do not need to amend the LLC Operating Agreement whenever a small change is made. Instead, assign an owner to track needed alterations to the agreement and address these issues in a single amendment process.
The Consequences of Not Using an Operating Agreement Amendment
An Amendment to an LLC Operating Agreement is essential to reflect the company’s current operations, as well as the responsibilities and own shares of the business members. Without an amendment, the original operating agreement is a valid contract between the parties. Only the terms in that agreement will be applied to disperse profits or make management decisions.
In this situation, new partners will not be entitled to any assets if the business is dissolved. Those partners who invested additional funds or assets will not receive compensation commensurate with their contributions. In addition, former owners could legally be entitled to receive the share of assets they were assigned in the original agreement, despite their absence from the company.
The LLC is more likely to fail or be dissolved when the original LLC Operating Agreement does not reflect current ownership structures and member responsibilities. Other issues, such as leadership shifts and profit-sharing changes, cannot be enforced in a court of law without an amendment.
Disputes between owners will only be settled as per the original agreement, regardless of whether current operations are inconsistent with that document.
Drafting and ratifying an LLC Operating Agreement Amendment is not difficult or time-consuming, making it easy to provide legal protections to all owners.
Most Common Operating Agreement Amendment Situations
The LLC Operating Agreement Amendment is used whenever there is a change to the original agreement, either modifying existing terms or adding new ones as needed. It is most often used when:
- An owner leaves the business
- A new owner is added to the business
- There is a change in the timing of distributions
- There is a change in the percentage allocations of distributions
- Additional capital is invested in the business
- There is a change in voting rules in general or for a specific decision, i.e., unanimous consent or majority vote
- Other managerial or financial changes that differ from the original Operating Agreement
The LLC Operating Agreement and any existing Amendments should be reviewed annually to determine if additional amendments are required.
There are two LLC management structures: member-managed and manager-managed. Make sure to keep all relevant parties up to date with changes.