Create a Free New York
LLC Operating Agreement

Create Your Version of This Document

What is an operating agreement for an LLC in New York?

A New York operating agreement, also known as an LLC Agreement, is an internal document that tailors the terms of a limited liability company to the unique requirements of its members.

Like articles of incorporation for a corporation, this legal entity delineates financial and operational decision-making processes within the LLC, making New York operating agreements essential for the effective governance of LLCs.

Section 206 of the Limited Liability Company Law mandates the publication of the Articles of Organization or a formation-related notice for most New York limited liability companies. This publication should appear in two newspapers for six consecutive weeks, designated by the county clerk where the LLC’s office is situated. The newspapers charge a fee for this service.

Ensure accuracy, as the published details must match the New York State Department records precisely as stated in the initial articles of organization. Obtain an affidavit of publication from each newspaper’s printer or publisher.

Why is an LLC operating agreement important?

New York LLC owners or members enter into LLC agreements to formalize their private arrangements and supplement the default regulations rules in applicable NY LLC laws. (Operating Agreement State Law)

As per the legal provisions outlined in NY LLC L § 417 (2019), New York LLC members are mandated to adopt a written operating agreement before, at the time of, or within ninety days after filing the New York LLC Articles of Organization.

Is an operating agreement required in New York?

Yes. Under statute NY LLC L § 1102 (2019), you are required to retain a copy of your operating agreement and any subsequent amendments.

Furthermore, an LLC operating agreement has the following benefits:

• It emphasizes the company’s distinct entity, which protects the members from the liabilities of the LLC itself;
• This legal document describes how profit is allocated and distributed;
• It provides clarity in the company’s management structure which is vital for effective leadership and strategic planning;
• It cements the LLC’s legitimacy and provides for its lawful business purpose.
• In cases of conflicts or potential ones, the LLC operating agreement has a vital role to play in resolving or preventing such;
• Once signed, it acts as a binding contract between the members of the LLC, and between the members and the LLC.

How do you create an operating agreement for an LLC?

To create an operating agreement for an LLC in New York, start by outlining the company’s structure, member considerations, voting and action, membership interests, transfer of interests, withdrawal or termination of a member, management of LLC, liability and indemnification, officers and directors, equity infusions, and capital accounts.

Once drafted, all members should review and sign the agreement. Keeping a copy of the signed agreement in the company’s records is advisable. Suppose you’re unsure about the legal requirements or need assistance. You can contact the Department of State Division of Corporations, State Records and Uniform Commercial Code, located at One Commerce Plaza 99 Washington Ave. Albany, NY 12231-0001, for further guidance.

Organizational Matters

LLC Name and Member Information

An LLC’s name in New York must include “Limited Liability Company” or the abbreviation “L.L.C.” or “LLC,” and be distinct from other business names. It should not contain restricted words and must be used in business transactions.

Members need to provide their contact details as the LLC is required to maintain records of members’ names and residence.

A final determination is not made until the Articles of Organization are reviewed and filed by the Department of State.  

Formation and Service of Process

The LLC becomes official when its articles of organization are filed with the New York State Department. It must designate the New York Secretary of State as its agent for service of process. The articles should include a postal address and an email for service notifications. Additionally, the LLC can appoint a registered service agent whose details must be included in the articles.

Principal Place of Business and Duration

The LLC needs to specify its principal place of business, any branch offices, and whether it will operate in other states, necessitating foreign qualification.

Additionally, the LLC can either exist perpetually or have a specified dissolution date or event, which should be clearly stated in its articles of organization filed with the appropriate department.

Purpose and Restrictions

The LLC’s general purpose should be defined, which can be narrow or broad, and it should comply with New York laws. The operating agreement may restrict the LLC’s powers granted by the NY LLC and should indicate if the LLC is part of a merger or conversion, including asset and liability transfers.

Professional Service LLC and Licensing

If the LLC is a professional service LLC, it must ensure that individuals and members are appropriately licensed. Such PLLCs have specific licensing requirements and transfer restrictions. The LLC might also need local and state business licenses based on its business type and location.

Publication Requirements

Finally, the LLC must comply with NY LLCL’s publication requirements, which involve publishing notice of the LLC’s formation in two newspapers in the county of the LLC’s office. The operating agreement should consider the cost of this publication.

Member Considerations

In New York LLCs, admitting new members typically requires a majority vote of existing members, with manager-managed LLCs also requiring manager consent (NY LLCL §§ 402(c)(1), 203(e)(7)).

The operating agreement outlines limitations of LLC member liability to their initial equity infusions and indemnification against certain claims (NY LLCL §§ 417(a), 420).

Additionally, members vote on transactions, and they are usually permitted to engage in transactions with the LLC, subject to restrictions outlined in the operating agreement (NY LLCL § 611).

Voting and Action

Voting Thresholds and Calculations

The agreement must outline the voting requirements for each issue, adhering to NY LLCL guidelines. It can establish varied thresholds, adjusting them as needed. While NY LLCL typically calculates votes based on profit share, the operating agreement has the flexibility to modify this rule (NY LLCL §§ 102(o), 402(a), 402(e)).

Minimum Approval Requirements

The agreement might vary the default minimum approval requirements of the NY LLCL. Member actions without a meeting are permissible, usually requiring unanimous written consent unless the agreement specifies otherwise (NY LLCL § 407(a)). Members can vote in person or by proxy, subject to the operating agreement (NY LLCL § 402(b)).

Meetings

The company may hold its annual members meeting as determined by the General Manager. Special meetings may be called for any purpose by a manager or a group of members.

When members need to vote at a meeting, they must be notified in writing. This notice will tell them where, when, and why the meeting is happening and who called it. Members may be notified about the meeting personally or by first-class mail.

Membership Interests

Classes of Membership Interests

When the articles of organization allow for multiple classes of membership interests, as permitted by NY LLCL § 418(a), several provisions must be included for each class. These include voting rights, the designation of common or preferred interests, and specific allocation, distribution, and liquidation preferences, often outlined in waterfall provisions. Other aspects to review include management rights, obligations for additional capital contributions, and pre-emptive rights to prevent dilution.

Compliance with Securities Laws

Understanding the legal requirements under New York’s blue sky laws, known as the Martin Act (N.Y. Gen. Bus. Law §§ 352 to 359-h), is essential, particularly if the membership interests require registration. Additionally, the LLC should determine if it needs to file documents for an exemption under the Securities Act of 1933, such as Form D.

Issuance of Profits Interests

The LLC might consider issuing profits interests to members or employees, a topic thoroughly discussed in practice notes on profits interests. Related documentation, such as a profits interest plan and award agreement, should be prepared following legal guidelines.

Certification of Membership Interests

Lastly, the LLC must decide whether the membership interests will be certificated or uncertificated, as outlined in NY LLCL § 603(b). This decision impacts how membership interests are recorded and transferred.

Transfer of Interests

Assignment of Membership Interests

In New York, unless specified differently in the operating agreement, membership interests in an LLC can be assigned (NY LLCL § 603(a)(1)). Operating agreements often permit such assignments but typically include specific transfer restrictions to regulate these processes.

Rights of Assignees

Regarding the assignee rights, the operating agreement plays a crucial role.

By default, an assignee does not become a member or acquire rights to vote unless most non-assigning members agree (NY LLCL § 604(a)).

An assignee is entitled to the economic benefits of the membership interest, such as profit shares, but not to the voting, management, or other member rights (NY LLCL § 603(a)(2), (3)).

Imposed Transfer Restrictions

Operating agreements often establish detailed transfer restrictions. In cases where the LLC is treated as a partnership for U.S. federal income tax purposes, any transfer or withdrawal that would change the tax status of the LLC to a corporation is generally prohibited, overriding any other provisions in the operating agreement. This ensures tax compliance and preserves the desired tax status of the LLC.

Withdrawal or Termination of a Member

A member’s withdrawal from an LLC, governed by NY LLCL, varies based on formation dates. The operating agreement outlines withdrawal procedures, including notice requirements. It must address liabilities for wrongful withdrawal and withdrawing member entitlements, typically distributions and fair membership interest value. These provisions ensure a structured and fair approach to withdrawal, balancing member interests.

Management of the LLC

The management structure of an LLC is crucial to its organization.

In New York, unless specified otherwise in the articles of organization, the default is for the LLC to be member-managed (NY LLCL § 401(a)). This implies that the members jointly manage duties.

However, an LLC can choose to delegate duties to one or more appointed managers, an executive committee, a board of directors, or designated officers. If the decision is to have the LLC managed by its members, then the same considerations to managers should be applied to these managing members. This decision impacts the LLC’s day-to-day operations and governance.

Member-Managed LLC

The document may provide that the LLC will be managed by all members or only certain members or classes of members.

However, the default is that all members and anyone with managerial powers will manage the LLC.

Manager-Managed LLC

In a manager-managed LLC, a manager is anyone designated by the members to oversee the LLC’s operations, as outlined in the operating agreement (NY LLCL § 102(p)).

Liability and Indemnification

Unless the operating agreement provides otherwise, a manager must perform his or her duties in good faith and with the same degree of care that an ordinarily prudent person in a similar position and circumstance would use (NY LLCL § 409(a)).

Members in a member-managed LLC are subject to the same standards. (NY LLCL § 401(b)(ii), see Marcus v. Antell, 2018 WL 4849375, *4-5 (Sup. Ct. N.Y. Co. October 5, 2018) stating that, if management is vested in all members of a member-managed LLC, each member owes fiduciary duties regardless of how active the member is in the LLC’s management).

Officers and Directors

Officers in the LLC

While the New York Limited Liability Company Law (NY LLCL) does not mandate that an LLC have officers, it may choose to appoint them. The authority to appoint officers can be vested in various entities within the LLC, such as a majority of the members, managers, or, in the case of a single-member LLC, the sole member. The operating agreement should clearly define the powers, responsibilities, and process for appointing and removing these officers.

Board of Directors

As for establishing a board of directors, the NY LLCL does not automatically apply corporate laws governing directors to LLC directors. The operating agreement must specify the board’s role in governing the LLC.

It should detail the board’s relationship with the managers and members, their responsibilities, the procedures for appointing and removing officers, and the extent of their authority to act on behalf of the LLC. This clarity ensures that the LLC’s governance structure is well-defined and operates effectively within the legal framework.

Capital Contributions

Initial Contributions

Members’ initial capital in an LLC can be in cash, property, services, or a promissory note. The form and amount are decided as per the LLC agreement (NY LLCL § 501).

Initiating ownership percentages for an LLC typically begins with determining the necessary startup capital. Once established, dividing each member’s initial contribution enables the calculation of their ownership shares. However, shares need not rely solely on financial inputs, as LLCs offer considerable flexibility in structuring the business model.

Timing and Additional Contributions

Contributions are required when the LLC is formed, based on a schedule, or during specific events. Additionally, the agreement details procedures for making further contributions.

Capital Calls

The agreement outlines the decision-making process, member notification, and individual contribution amounts for additional capital requirements. It also addresses alternative funding solutions if a member defaults.

Non-Contribution Penalties

If a member fails to meet their contribution, penalties may include a reduction of their interest, forced sale of interest, or financial cover from other members (NY LLCL § 502(c)).

Interest on Contributions

Generally, members do not earn interest on their contributions to the LLC.

Capital Accounts

The LLC’s Operating Agreement will specify guidelines for managing capital accounts, including whether members need to replenish negative balances, which could impact member liability.

It also addresses the transferability of capital accounts to new members and rules around withdrawing funds. A tax counsel or advisor’s review of these provisions is crucial to ensure compliance with tax laws.

Filing

When the LLC is formed, various documents need filing.

• Articles of Organization – this is the primary document for forming an LLC. The filing fee is $200.
• Operating Agreement – this document is required for all LLCs. It is not filed with the state but must be kept internally. formalizes the company’s policies, procedures, and strategies. Publish notice in two newspapers for six consecutive weeks. Obtain an affidavit of publication from each publisher and submit a Certificate of Publication to the Department of State with a $50 filing fee.
• Publication Requirement – After forming an LLC, New York State requires that the LLC publish a notice of its formation in two newspapers for six weeks.

How to amend a New York LLC operating agreement?

In New York, amending an LLC operating agreement is a straightforward process governed by the state’s laws and regulations.

Changes can be made by all the members through a formal amendment procedure outlined in the LLC operating agreement – New York.

The reasons for amendment may include updates to the management structure, member contributions, or any other provisions initially outlined.

This flexibility ensures that LLC owners can adjust their operating agreements to reflect business operations or ownership structure changes.

How will the LLC be treated for US federal income tax purposes?

The IRS determines the income tax treatment of an LLC based on its number of members and the tax classification election elections made by the LLC.

1. Single-Member LLC: By default, a single-member LLC is not considered separate. The income and expenses of both the LLC and the person are regarded as one.
2. Multi-Member LLC: By default, a multi-member LLC is treated as a partnership for federal income tax purposes.
3. Election to be Taxed as a Corporation: An LLC, whether single-member or multi-member, can elect to be taxed as a C corporation by filing Form 8832 (Entity Classification Election) with the IRS.

These options provide flexibility for LLC owners to choose the tax treatment that best suits their financial and operational needs.

How will the LLC deal with dissolution?

The dissolution of an LLC in New York is primarily governed by Section 7 of the New York LLC Company Law. This is primarily divided into three parts: (a) Dissolution, (b) Winding Up, and (c) Filing Requirements.

• (a) Dissolution – dissolution may be voluntary or judicial (involuntary). A voluntary dissolution is done by the vote or consent of the majority of the members or by a different percentage specified in the operating agreement. A judicial dissolution is one that is done following a court order under certain circumstances. It is commenced by an application of a member and upon finding by the court that it is no longer reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.
• (b) Winding Up – members may wind up the LLC’s affairs upon voluntary dissolution. The persons winding up the LLC may prosecute and defend suits, settle the business, dispose of the property , and distribute the remaining assets of the LLC.

LLC Operating Agreement Generator

A free LLC Operating Agreement generator can be an invaluable resource for those ready to take the next step in crafting their LLC Operating Agreement. It simplifies the process, ensuring that you cover all essential aspects in compliance with New York law.

Click here to access the free generator tool to begin creating your customized LLC Operating Agreement or an LLC operating agreement template with ease. It can generate a well-crafted operating agreement, developed with the guidance of legal counsel.

Create A New York LLC Operating Agreement Now

New York LLC Operating Agreement FAQs

• Can I create an operating agreement after forming my New York LLC?
  Yes, you can create an operating agreement after forming your New York LLC. However, it's advisable to have one in place as soon as possible to clarify the rights and responsibilities of members and managers, as well as other important aspects of your LLC's operation. You can draft the operating agreement yourself or seek assistance from legal professionals familiar with New York LLC regulations. Once drafted, ensure it complies with the requirements set forth by the New York Department of State for LLC operating agreements.
• Are there any specific requirements (or non-requirements) for the contents of an LLC operating agreement in New York?
  • The NY LLCL does not require officers;
  • The New York Transparency Act requires certain LLCs to disclose beneficial ownership information to the New York State Department (DOS);
  • The admission of new members requires a vote of a majority in the interest of the members entitled to vote (NY LLCL §§ 402(c)(1) and 203(e)(7));
  • A manager is not required to be a member unless the operating agreement provides otherwise (NY LLCL § 410(a));
  • The vote or written consent of the members having at least the majority in interest is required to terminate the LLC, unless the operating agreement requires otherwise. (NY LLCL § 701(a)(3).)

  Operating agreements are intricate legal documents, so it's understandable that many new LLC proprietors may not possess the expertise to craft one independently. This is precisely why FormPros provides complimentary, lawyer-prepared operating agreement templates, tailored to specific states like New York and easily adaptable to suit the requirements of your LLC.

• Can an LLC operating agreement be amended multiple times in New York?

  Yes, it may be amended from time to time as provided therein. However, no amendment shall be made that:

  (a) increases the obligations of any member to make contributions;
  (b) alters the allocation of any items of income, gain, loss, or deduction or credit for tax purposes;
  (c) alters the manner of computing the distributions of any member;
  (d) allows the obligation of a member to make a contribution to be compromised by consent of less than all the members.
  
• What happens if my New York LLC does not have an operating agreement?
  Members LLC Operating Agreement Generator>should adopt a written operating agreement. Without this agreement, this will lead to the application of New York Laws on LLC, potentially complicating matters further for your LLC. Without an operating agreement in place, business owners and their co-owners may find themselves ill-prepared to resolve disputes regarding management and finances.
• Can an LLC operating agreement outline the roles and responsibilities of members and managers in New York?

  Yes. If manager-managed, management of the company will follow after chapter 34 of the New York LLC Law, the articles of organization of the company, and section 418 of NY LLC Law or that which provides for the classes and voting powers of members.

  If managed by members, such member(s) shall be deemed as the manager for purposes of applying the provisions of Chapter 34 (Management of Members or Managers), unless the context otherwise requires, and (ii) any such member shall have and be subject to all of the duties and liabilities of a manager in the said chapter.

• Does New York require an LLC operating agreement to be notarized?
  No. New York state law does not require LLC operating agreements to be notarized. However, it's important to note that while notarization is not mandatory, having your LLC operating agreement notarized can add an extra layer of authenticity and legal recognition to the document.
• Can an LLC operating agreement cover dispute resolution among members in New York?

  Yes. Section 417 of the New York LLC provides significant flexibility for LLCs to customize their operating agreements to suit the members' needs. This includes provisions on how to resolve disputes in case they arise. Here are some key points regarding dispute resolution in an LLC operating agreement in New York:

  • Flexibility: Allowing members to tailor the dispute resolution process to the specific needs and circumstances of the LLC;
  • Arbitration or Mediation: These are private and often more efficient means of resolving disputes compared to traditional litigation;
  • Procedures: The operating agreement can outline detailed procedures for initiating, conducting, and concluding the dispute resolution process. This may include requirements for notice, negotiation, mediation sessions, selection of arbitrators or mediators, and the timeline for resolution.
• Can I use a template to create my New York LLC operating agreement?
  Yes, an LLC operating template can be because the NY LLC law grants members flexibility. Also, operating agreements are subject to general contract law principles which means that parties can agree to whatever stipulations as long as they are not contrary to state law, morals, and public policy.
• Can an LLC operating agreement deal with allocating profits and losses among members in New York?
  Yes, an LLC operating agreement in New York can address the allocation of profits and losses among members, typically by specifying how they will be distributed based on ownership percentages, roles, or initial capital contributions.
• How does an LLC operating agreement protect members' personal assets in New York?
  It primarily protects the personal assets of members and managers by establishing the LLC as a separate legal entity. This separation ensures that members are not personally liable for the company's debts or legal liabilities beyond their investment in the LLC. (§609)
• Can an operating agreement address the procedures for admitting new members to the LLC in New York?
  Yes, because of the flexibility provided by Section 417, members can specify the procedure for admitting new members. In the absence thereof, NY LLC Law provides for dates of effectivity of membership and the admission process after such date of effectivity. (§602)
• Are any specific clauses required in a New York LLC operating agreement for multi-member LLCs?
  While New York doesn't have specific required clauses, multi-member LLC operating agreements often include provisions related to LLC organization, equity infusions and accounts, member admission, withdrawal, certification, income and loss allocation, tax allocations, cash distributions, and company management.
• Can an operating agreement specify voting rights and decision-making processes for the LLC in New York?
  Yes. Section 402 provides that operating agreements may grant members the right to vote on the same matters as authorized under the NY LLCL, such as voting on significant matters such as the sale of all or substantially all the LLC's assets, dissolution, merger, or consolidation of the LLC.
• Can an LLC operating agreement in New York include non-compete clauses?
  The New York Limited Liability Company Law does not explicitly address non-compete clauses in operating agreements in a specific section. Instead, the allowance for including non-compete clauses is generally derived from the broad authority under Section 417 for members to craft operating agreements. And since non-compete clauses are subject to general contract law principles, they must be provided so they do not violate the law or public policy.
• How does an operating agreement help maintain limited liability protection for members of an LLC in New York?

  Section 609 (Liability of Members) clarifies that members, managers, or agents are not liable for any debts, obligations, or liabilities of the LLC or each other, whether arising in tort, contract, or otherwise, solely because they are such members, managers, or agents in the conduct of the LLC business. This clear delineation or separation is often called the "piercing of the corporate veil." To support the principle of Limited Liability, the operating agreement may provide:

  1. Segregation of Assets and Operations - detail the procedures for capital contribution, distributions, and handling of company funds, among others;
  2. Governance and Decision-Making Process - clear rules on who has the decision-making authority, the roles of members and managers, and the resolution of disputes help reinforce the existence of a distinct legal unit;
  3. Member Roles and Responsibilities - a clear definition of roles and obligations helps clarify the course of action to conduct the LLC business;
  4. Dissolution and Winding Up - the dissolution process and distribution of assets upon winding up can help ensure that the closer of the business respects the separate existence of the company obligations and member assets.
• What is the role of the Commercial Licensing Bureau?
  It typically refers to state or local government agencies in various jurisdictions that are responsible for issuing licenses and permits for specific types of businesses or commercial activities. In New York, the primary state agency responsible for overseeing, filing, and administrating LLCs is the New York State Department of State, Division of Corporations. This Division handles the filing of organizational documents for new LLCs, such as Articles of Organization, and ensures compliance with the New York Limited Liability Company Law (NYLLCL).
• Who can serve as a Registered Agent for my New York LLC?

  Each domestic or authorized foreign LLC may designate a registered agent upon whom process against the LLC may be served. (Section 302) When this is done, LLCs are also required to provide an address for forwarding any service or process. In addition, the Secretary of State shall be the agent of every domestic and foreign LLC. (Section 301)

  Section 302 (Service of process on the Secretary of State as an agent of a limited liability company): Outlines the procedure for serving process on the Secretary of State as the agent of the LLC. This includes providing the LLC a copy of the process at its address on file through certified mail.

• Can a legal business entity act as a member of a New York LLC?
  Yes, a "member" means a person who has been admitted as a member of an LLC following the terms and provisions of the LLC Law. A "person" means any association, corporation, limited partnership, or any other individual or entity in its own or any representative capacity. (Section 102)
• What is the filing fee for an LLC Operating Agreement in New York?
  There is no filing fee for an operating agreement because it is not filed with the Department of State or any other governmental agency. The Operating Agreement is an in-house record kept by the LLC members and may need to be presented to financial institutions for tax purposes or in legal situations. However, other documents require the payment of filing fees, such as the Articles of Organization, which cost $200.
• How does the Internal Revenue Service (IRS) classify an LLC in New York for tax purposes?

  The IRS has a uniform classification system for LLCs for federal tax purposes. This classification applies regardless of the state in which the LLC is organized. The classification depends on the number of members in the LLC. These are:

  1. Single-Member LLCs - these are not considered a separate entity for tax purposes. This means the LLC does not pay taxes or file a separate return. The income and deductions are reported on the owner's tax return;
  2. Multi-Member LLC - this is classified as a partnership for federal tax purposes. This means that a multi-member LLC is a pass-through entity for tax purposes. The LLC must file an information return using Form 1065, and each member reports their share of the LLC's income or loss on their tax returns using Schedule K-1 (Form 1065);
  3. Electing Corporate Taxation: An LLC can be taxed as a corporation by filing Form 8832 (Entity Classification Election) with the IRS. After making this election, the LLC can be taxed as either a C corporation or an S corporation (if it is eligible as an S corporation) by filing Form 2553.
• Do I need to file my New York LLC Operating Agreement with the state?
  No, there is no requirement under the New York LLC Law that operating agreements be filed with the state. The Operating Agreement is an in-house record whose details are kept among members and are not submitted to the state as part of the state's records.