Operating Agreement LLC Michigan

A Michigan Limited Liability Company (LLC) Operating Agreement is an internal governance document that explains how the company will function. It outlines ownership interests, establishes management responsibilities, and details the procedures members will follow when making decisions. Some refer to it as a Michigan Operating Agreement or Michigan LLC Company Agreement. Regardless of the name used, it serves as the LLC’s primary internal record of its structure and operations.

Many Michigan LLCs adopt an Operating Agreement during formation, while others prepare one later. The document is not filed with the state and remains part of the LLC’s internal records.

Is a Michigan Operating Agreement Required?

Michigan does not require LLCs to maintain an Operating Agreement. Under the Michigan Limited Liability Company Act, LLCs may be governed by a written, oral, or implied agreement. Even though optional, a written Operating Agreement is strongly recommended. Without one, the company defaults to Michigan’s statutory rules, which may not match the members intended structure or decision-making preferences.

Why a Michigan Operating Agreement Matters

Helps preserve limited liability protection

A written Operating Agreement helps distinguish the LLC as a separate legal entity from its members. Courts may review internal documentation when determining whether to uphold limited liability protections, especially for single member LLCs.

Establishes customized procedures

Michigan’s default rules apply only when the Operating Agreement does not address a particular matter. A written agreement allows members to define how voting, profit distribution, management duties, and dispute resolution will be handled.

Often required by banks and advisers

Financial institutions frequently request an Operating Agreement before opening a business bank account or approving financing. It clarifies who has authority to act on behalf of the LLC.

Supports compliance with Michigan’s Annual Statement requirement

Michigan LLCs must file an Annual Statement each year. Assigning responsibility for this filing in the Operating Agreement helps ensure timely compliance.

Key Provisions to Include in a Michigan Operating Agreement

Basic Company Details

• LLC name
• Business purpose
• Principal office address
• Duration of the LLC
• Federal tax classification

Michigan requires LLC names to include Limited Liability Company, LLC, or an accepted abbreviation.

Registered Agent and Office

• Name and Michigan street address of the registered agent
• Procedures for updating the registered agent
• Filing requirements with the Michigan Department of Licensing and Regulatory Affairs (LARA)

Member Information

• Names and addresses of all members
• Ownership percentages
• Initial capital contributions

Capital Contributions

• Description of each member’s contribution
• Rules for additional contributions
• Statement that contributions do not earn interest unless agreed

Management Structure

• Whether the LLC is member managed or manager managed
• Duties, rights, and authority of members or managers
• Procedures for appointing or removing managers

Profit and Loss Allocation

• Allocation method for profits and losses
• Timing and conditions for distributions
• Confirmation that distributions must not prevent the LLC from meeting financial obligations

Tax Election

• Federal tax classification selected by the LLC
• Statement that certain elections require IRS filings

Voting Procedures

• Voting rights of members
• Quorum requirements
• Vote thresholds required for routine and major decisions

Many Michigan LLCs use ownership-percentage voting unless modified in the agreement.

Transfers of Interest

• Rules for transferring member interests
• Procedures for admitting new members
• Treatment of interests in the event of withdrawal, death, or expulsion

Records and Bookkeeping

• Policies for maintaining business and financial records
• Assignment of responsibility for filing Michigan’s Annual Statement
• Statement that failure to file may lead to penalties and loss of good standing

Compensation

• Policies for compensating members, managers, or officers
• Rules for reimbursement of expenses

Dissolution

• Events that may trigger dissolution
• Steps for winding up the LLC
• Filing of a Certificate of Dissolution with Michigan LARA

Amendments

• Procedures for modifying the Operating Agreement
• Requirement for written approval unless otherwise stated

Management Options for Michigan LLCs

Member Managed

Members oversee daily business operations and have authority to act for the LLC. This structure is common for smaller companies. Voting typically corresponds to ownership percentages unless modified by agreement.

Manager Managed

Members appoint one or more managers to run daily operations. Managers may be members or nonmembers. Members retain control of major decisions while delegating routine management duties to the appointed managers.

Creating and Maintaining the Michigan Operating Agreement

Drafting and Signing

The Operating Agreement becomes effective once adopted by the members. Although Michigan recognizes written, oral, and implied agreements, a written version offers clarity and reduces disputes.

Recordkeeping

Members should store the agreement with the LLC’s permanent records. Michigan requires annual filings, making reliable documentation essential for ongoing compliance.

Amending the Agreement

Members may amend the Operating Agreement by following the procedures described in the document. If amendments affect state-filed information, the LLC must update its records with Michigan LARA.