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There’s no better time to go into business in the Gem State. The economy is booming in Idaho. In fact, according to the U.S. News & World Report, the state ranks ninth in the country for GDP growth. The state’s also known for its unwavering support of small, local businesses.

Of course, like anything, there are also challenges that come with the good. When forming a company, everything ultimately falls on the shoulders of the ownership team.  

If you’re the sole member (owner), that means everything comes down to you. If you’re working with multiple investors and members, you might encounter conflicts and instances where everyone isn’t on the same page regarding the business.

Luckily, there’s an easy solution to relieve some of the stress that comes with running a business: At the time you launch your company, you should also create an Operating Agreement during the initial stages of the LLC formation process.

This valuable document is designed to provide the governance of your company. It dictates everything you need to know about its structure, management, and daily operations. In addition to providing guidance for your business, it’s a useful tool if conflict among members arises. With the ins and outs of the company laid out in writing, it will be easy to determine who’s right and who’s wrong during disagreements. It’s an excellent resource for keeping the peace.

Your Operating Agreement also provides additional protection for the personal assets of all members, as it further establishes your company’s limited liability status. This means that if your company is sued or struggles with debt, your own assets are less likely to be touched.

This document provides direction for your new company, guiding it toward success as you grow your business. Read on to learn how to write an Idaho LLC Operating Agreement and which terms you should include.

What is an Idaho LLC Operating Agreement?

Before starting a business, you’ll consider various business structures. There are four basic types: sole proprietorship, partnership, corporation, and limited liability company (LLC).

An LLC is popular among owners of smaller businesses. It offers the limited liability protection of a corporation but is more flexible and easier to manage like a partnership.  

As you prepare your documents to register your Idaho LLC, remember that this type of business can be owned by a single individual — you would be the only owner — or multiple entities. These entities could be other people, or they may be other businesses, including corporations, partnerships, and other LLCs. 

It’s also important to note that all owners — whether they’re people or other companies — are referred to as members.

When you register as an LLC, you’re creating a new entity that is completely separate from all members involved. This new entity bears the weight of any debt or legal issues that might arise for your LLC, protecting the personal assets of your members.

Only a few states require LLCs to file an Operating Agreement during its formation. However, Idaho isn’t one of them. When filing your Certificate of Organization with the Idaho Secretary of State, there is no legal obligation to create or submit an Operating Agreement.

That doesn’t make an Operating Agreement any less important. Even though there are no legal requirements to draft this document, it would be smart for you to do so.

Also, if you don’t draft an Operating Agreement, should your company encounter any issues, you’ll automatically default to the rules and regulations established by Idaho statutes regarding LLCs. In this case, any legal determinations made regarding these conflicts and your LLC will be based on state law.

If you create your own Operating Agreement, though, this can supersede those state laws for LLCs. So, drafting this document is in your best interest and provides you with more control over your business.

If you decide to write one, you don’t need to file it with the state. Instead, this legal document should be filed internally at your LLC’s primary place of business once approved by your membership.

Often, new LLCs draft, review, and approve their Operating Agreement at their organizational meeting. This usually takes place around the time they file their Certificate of Organization in Idaho. There is no cost associated with adopting your Operating Agreement since you’re not filing it with the state, but there is a $100 to $120 filing fee (depending on how you file) for your Certificate of Organization.

Your Idaho LLC Operating Agreement is an integral document that’s worth taking the time and effort to draft when you launch your company.

It offers guidelines for your LLC’s financial and operating decisions and establishes your company’s management structure. Having an Operating Agreement in place will help your business run smoothly as you get it off the ground and, ultimately, play a role in your success.

Why do I need an LLC Operating Agreement in Idaho?

Despite an Operating Agreement not being required in Idaho, creating this document with your company’s specific needs in mind should be at the top of your to-do list.

Your Operating Agreement will serve as the backbone of your business. It sets the tone for both your day-to-day operations and bigger-picture planning for your company. Once it’s written, all of your decisions should be based on this document.

It’s important to note that if you don’t draft an Operating Agreement, you’ll default to Idaho’s state laws regulating LLCs. By creating your own document, you retain more control over how your business operates.

There are many benefits to having an Operating Agreement. This document helps establish your company’s limited liability status, according to the U.S. Small Business Administration (SBA). This status protects your members and their personal assets from legal repercussions associated with the LLC.

It also serves as a guide during member disputes. As you launch your LLC, if any conflicts arise regarding the company’s operations or finances, the Operating Agreement will have the answers you’re looking for. It helps to have every important piece of your company in writing when settling disagreements.

This document also plays an important role in your company’s finances. Don’t be surprised if banks request a copy of your Operating Agreement when you open a business bank account or if a lender wants to review it before approving a loan.

What do I include in my Idaho LLC Operating Agreement?

Each business has its own needs and interests to keep in mind when writing an Operating Agreement. This means you’ll draft a document that is specific to your LLC.

There is no set Operating Agreement form to fill out for your Idaho LLC, and no two documents look alike.

The members of your organization will determine what is included in your agreement. What do they want the day-to-day operations to look like? What management structure do they want? What are their preferences for paying out profits each year?

Your Operating Agreement will cover many other important terms, as well, from the buyout process to dissolving the company.

If you struggle with what to include in your Operating Agreement, look to other businesses in your industry for ideas. In addition to industry norms, consider state and federal laws. You’ll always want your Operating Agreement to be legally compliant.

However, there are certain basic items most Idaho LLCs will likely want to include in their Operating Agreements, such as:

1. LLC Name

The first part of your Operating Agreement lists your business name. It should match the name you’ve registered with the state through your Certificate of Organization.

Your name must also include the designator words you chose when completing the Articles of Organization, which would be the words “Limited Liability Company,” “Limited Company,” or the abbreviations “LC,” “LLC,” or “L.L.C.”

2. Ownership

In the ownership section of your Operating Agreement, you’ll list the names of all members who have invested in your LLC as owners. You’ll also want to note their capital contributions to the company.

It’s possible to establish a single-member LLC, which only has one owner but still benefits from the protection from personal liability provided by this business type. Your LLC can also have multiple members, which can be a mix of individuals and other businesses.

All owners should be named in this section of the document.

In addition to their names, you also need to include their ownership percentages or ownership interest. You can determine ownership percentages however you wish, as long as all members are in agreement about it. Some LLCs divide the ownership equally among members, others base it on capital contributions, and others use some other metric.

3. Management Structure

In regards to management of the company, you’ll establish your management structure through your Operating Agreement. There are two structures to choose from: member-managed and manager-managed.

Unless you expressly state which type of management structure you prefer for your LLC, Idaho state statutes default to member-managed. This means that the day-to-day decisions are made by the members.

If you choose a manager-managed structure, you can select one or more members to take on management positions, or you can hire managers from outside the LLC membership.

4. Powers and Duties of Members and Managers

Your Operating Agreement should establish the expectations in place for your members and managers. Putting their powers and duties in writing makes them easier to enforce.

First, determine how involved your members will be. Even if they opt not to take on a management position, are there additional duties they would be willing to take on?

As for your company’s managers, how much control will they have over the day-to-day operations? Determine which decisions will be made by members and what managers will decide.

5. Voting Rights and Responsibilities

Even your most passive members have voting rights and responsibilities. They will need to vote on matters affecting your LLC.

Your Operating Agreement should lay out this process. When and how does voting take place? What items are members expected to vote on? Can they vote remotely?

Also, you need to determine the value of each member’s vote. Will you establish that one member gets one vote? Or will the value of their vote be determined by their ownership percentage? Or will you determine voting rights by some other method?

6. Distribution of Profits

Your Operating Agreement should include directions for distributing your LLC’s profits among its members. In an LLC, you have a great deal of flexibility about how you can do this.

Not only will you have to decide how much of the profit each member will receive, but you’ll also have to decide how and when the members will get paid.

You can split the profits evenly among all members, or you can give a higher portion to members who own more of the company. However you choose to divide profits, you should make sure that all members are in agreement about it. 

You’ll need to decide whether members will see their profits directly deposited into their bank accounts, receive a check, or be compensated in some other form.

Indicate whether members will see profits monthly, quarterly, annually, or at another agreed-upon interval.

7. Guidelines for Scheduling and Holding Meetings

There are no true legal requirements regarding meetings of your LLC’s members.

Still, it helps to use your Operating Agreement to create guidelines for meetings. Several things to consider are when, where, and how you want these meetings to take place. Will members only meet annually or more frequently?

8. Buyout and Buy-Sell Rules

Your LLC’s membership is likely to change at some point. Either someone will decide it’s time to retire, or maybe they want to try something new in a different industry. It’s more chaotic when these transitions are out of their control due to death, divorce, or bankruptcy.

Therefore, you need to have a process in place for when members leave your business. This will create less stress for your company.

Determine how members are paid out when they leave your LLC. Also, decide who will be granted the first opportunity to purchase their portion of the company when they step away. Current members? Individuals or entities new to the company? And if you do bring in new members, will current members need to approve them by vote?

9. Dissolution of the LLC

Much like you use your Operating Agreement to guide you through the formation of your LLC, you will also rely on this document as you dissolve it.

In this section, you’ll determine what steps your members should take to close your business. To cease operations, how many member votes are needed to move this forward? Do you require a unanimous vote? Or do you only need a majority vote to make this decision?

This section should also determine what happens with the LLC’s remaining assets. What happens to anything that isn’t used to pay off your company’s debt? How will they be distributed among members?

During this high-stress time, you might encounter disputes among members. Planning for this moment and putting the process in writing will make this dissolution easier to handle.

And remember, when you dissolve your LLC in Idaho, you need to file a Statement of Dissolution. It’s free to file, but there is a $20 handling fee for manual processing based on how you file it. If you don’t fill out this document, your LLC will still be considered in business in the eyes of the state, which means you could still owe annual taxes and other fees.

10. Modifying Your Operating Agreement

As you grow your business, the needs of your LLC might start to look quite different from when it first formed. Your Operating Agreement is a fluid document that you can modify easily to adapt to these changes and guide your company moving forward.

This just requires a membership vote to approve any proposed changes.

This section will establish how votes to make changes to this document happen. When do these votes take place? How many votes are needed to approve updates?

And remember that if you make changes to your Operating Agreement that reflect changes to the information in your Certificate of Organization, you’ll need to update your Certificate of Organization with the state so that the two documents match.

Updating and Revising Your Idaho LLC Operating Agreement

As your business grows, you’ll find there are many reasons your membership might need to update your LLC’s Operating Agreement.

You’ll need to update the terms regarding ownership structure whenever a member leaves the LLC for any reason and if anyone new joins the ownership team.

If members switch gears and decide they’d prefer to be more passive or more hands-on over time, you might need to change your management structure, too.

And if federal or state statutes change, you’ll need to update your Operating Agreement so that it complies with the law.

Change is a natural part of doing business. So, it’s fairly easy to make changes to your Operating Agreement. First, your members should schedule a meeting to discuss and vote on the proposed changes. After this vote, if the change is approved, the Operating Agreement should be updated in writing to reflect this.

Finally, your LLC’s members should review the updated document and acknowledge their approval of these changes by signing it. The new Operating Agreement should be filed internally at your company’s primary place of business.

And, as always, if any changes to your Operating Agreement affect the information you included in your initial Certificate of Organization, you need to update that document with the state, as well.

To get into the habit of reviewing your Operating Agreement, make a reminder to look at it when you’re filing your annual report or when you’re updating your registered agent and/or registered office. In general, it’s good to look at it at least once during a calendar year.

Partner With ZenBusiness for Professional Assistance

Legally, you’re permitted to write your own Operating Agreement. You don’t necessarily need to be — or hire — a legal expert. Your LLC’s membership team might choose to work together to draft the terms for this document, or they might appoint one or several members to take on the task.

This is a legal document, though. So, you’ll need to write it carefully and do your research. If, at any point, you’re overwhelmed or have questions, don’t hesitate to consult with professionals. And once you’re done, you might want to hire a business attorney to review the document.

ZenBusiness is an excellent resource for creating your Idaho LLC Operating Agreement. Our easy-to-use LLC Operating Agreement template is a handy tool to reference while crafting your company’s Operating Agreement.