Utah Business Law: Operating Agreements Under Utah's LLC Statute

By Benjamin T. Beasley

Ben Beasley is a partner at the law firm of Freeman Lovell. His practice is focused on business, finance, and real estate law. He received his juris doctor degree from Harvard Law School.

Contact Ben at benjamin.beasley@freemanlovell.com.

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 the 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.

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Beneficial Ownership Rules

28 Dec, 2023

In a couple of months, a new rule will take effect, requiring all registered legal entities to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). We wanted to give you a heads up about the rule and give you as much information about what it means to you. What is the rule? The rule, which is called the Beneficial Ownership Information Reporting Requirements (BOI Rule), comes from the Corporate Transparency Act, which was passed by Congress in 2021. This law created the BOI Rule with FinCEN as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other deceitful ownership structures. Under this new law, FinCEN will permit Federal, State, and local officials to obtain ownership information for authorized activities related to national security, law enforcement, and intelligence. When does the rule take effect? And when do I have to submit a report? The BOI Rule takes effect on January 1, 2024 . If your company existed before January 1, 2024, you must file its initial beneficial ownership information report by January 1, 2025. If your company is formed or registered after January 1, 2024, you must file its initial beneficial ownership information report within 30 days after receiving actual or public notice that its creation or registration is effective. If any beneficial ownership information changes, you will have 30 days from the day of the change to file an updated or corrected report with FinCEN. What do I need to include in the report? The BOI Rule requires that all entities report information about the company, each individual with substantial control over the entity, and each beneficial owner. What information is required to report about the entity? Full legal name of your company and any DBAs names; Complete current street address for your company's principal place of business (P.O. boxes will not be accepted); The jurisdiction of formation or registration; and Tax identification: IRS tax identification number (TIN) and employer identification number (EIN). What information is required to report about the controlling individuals and beneficial owners? The individual's legal name; Individual's date of birth; Individual's residential address; and A unique identifying number from an acceptable identification document (such as an unexpired driver's license, passport, identification document issued by a State or local government or Indian tribe.) and the name of the issuing state or jurisdiction. Who is considered to have substantial control of the entity? Examples of an individual that exercises substantial control over the entity are: An individual is a senior officer (President, CEO, CFO, COO, Manager, or other office who performs a similar function); An individual has the authority to appoint or remove certain officers or a majority of directors of the reporting company; An individual is an important decision-maker for the company; or An individual has any other form of substantial control over the company. Who is considered a beneficial owner? A beneficial owner is an individual that owns or controls at least 25% of the entity’s ownership interests. This includes individuals that indirectly own or control 25% of the ownership interest. For example, if Joe is a 50% owner of Parent LLC, which in turn owns 50% of Subsidiary Corp, then Joe beneficially owns 25% of Subsidiary Corp (50% of 50% = 25%). What type of entities will be required to file a report with FinCEN? All domestically formed entities and foreign registered entities in the USA are required to file a report. Types of entities include corporations, limited liability companies, limited partnerships, general partnerships, and any other entity registered with a state Secretary of State or Division of Corporations or other similar office. There are some types of companies that are exempt from the reporting rule, and in general they are companies that already have to report beneficial ownership to another federal agency. The 23 exemptions listed by FinCEN are: Securities reporting issuer, Governmental authority, Bank, Credit union, Depository institution holding company, Money services business, Broker or dealer in securities, Securities exchange or clearing agency, Securities exchange or clearing agency, Other Exchange Act registered entity, Investment company or investment adviser, Venture capital fund adviser, Insurance company, State-licensed insurance producer, Commodity Exchange Act registered entity, Accounting firm, Public utility, Financial market utility, Pooled investment vehicle, Tax-exempt entity, Entity assisting a tax-exempt entity, Large operating company, Subsidiary of certain exempt entities, and Inactive entity. Now what do I do to comply with the BOI Rule? While you are not able to submit the beneficial ownership information report until January 1, 2024, you should use this time to gather information about your company, owners, and other entities now, so you can timely file your report. We added a small BOI Rule cheat sheet for you to keep and reference. Also, you can read FinCEN’s FAQ page about the BOI Rule https://www.fincen.gov/boi-faqs . Can you help me with my company’s report? Yes! We are happy to help prepare and file your company’s BOI Rule report with FinCEN. We can begin to gather and prepare the information for your filing right away and be ready once the BOI Rule takes effect January 1, 2024. To get started, please reach out to us. We also know that some situations can be complicated, so please feel free to ask us any questions regarding compliance with the beneficial ownership interest reporting requirements for your company.