Utah Business Law:

Operating Agreements Under Utah's LLC Statute

Perhaps the most-used business formation structure in Utah is the limited liability company. Once an LLC is formed, it is critical for the entity to have a documented set of rules or statements that will be used to govern the entity. This set of rules and agreements about how the entity is governed is called the operating agreement (See Utah Code Section 48-3a-102(16)). Most third parties, such as banks and other financial institutions, suppliers, counterparties to contracts, and partners – really, anyone knowledgeable enough to understand how entities operate – will require an operating agreement so that they can be sure that any actions the entity takes, or tries to take, are allowed by the entity’s governing documents. Just as important, the operating agreement also helps avoid disputes and uncertainty with other parties, and if the LLC has more than one member, between the members as well.

We help our clients create and run companies and analyze issues, problems, and requirements that may exist. We have found that there is a great deal of misinformation on the internet and among businesspeople about operating agreements and requirements for governing and operating an LLC, but if done properly, an LLC can provide liability protection, operational clarity, business structure, and other benefits for the life of the business.

 

Items Covered By Operating Agreements

 

There is no set requirement for what an operating agreement must contain, but it generally governs, at the very least, relations among the members as members and between the members and the company; rights and duties of manager(s); activities and affairs of the company and how they are to be conducted; and how the operating agreement can be amended or updated. See Utah Code Section 48-3a-112(1).

However, most operating agreements include more than these basic items. Normally, an operating agreement should address at least the following, depending on the structure and purposes of the LLC and how it is intended to operate in the future:

  • The name, purpose, address, and registered agent information for the entity

  • The management structure of the entity (member or manager managed)

  • The end date of the entity, if any, and how it can be dissolved

  • Names of members, voting and meeting requirements, and capitalization information

  • How capital contributions and return of capital works

  • Tax allocation and payment information

  • Requirements and restrictions, if any, on transfers of equity, sales, and bankruptcy or divorce of a member

  • Provisions regarding rights of first refusal, right of first offer, drag-along rights, tag-along rights, and other rights related to sales of equity

  • Management rights, powers, obligations, restrictions, and how managers and officers are appointed and terminated

  • How additional members can be admitted to the company

  • Indemnification provisions

  • How the corporate opportunity doctrine works

  • Book and records requirements

  • Governing law, mediation, arbitration, and conflicts requirements

 

Enlist a Utah Business Attorney

Our deep Utah business law knowledge can help you with your business structuring needs or other operational requirements. Whether you are seeking to create a new Utah business or need to review or update an existing business, we are available to discuss your options and answer your questions at an initial free, thirty minute consultation. Call us at (801) 477-6838 for a free consultation. You can also email Ben at benjamin.beasley@freemanlovell.com, fill out a contact form below, or set up an appointment to meet at our offices. We look forward to helping you.