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Swyft Filings is committed to providing accurate, reliable information to help you make informed decisions for your business. That's why our content is written and edited by professional editors, writers, and subject matter experts. Learn more about how Swyft Filings works, our editorial team and standards, what our customers think of us, and more on our trust page.
When filing for a limited liability company (LLC) in Montana, your primary concern is the Articles of Organization. After all, this is the document that officially establishes your Montana LLC.[1]
On the other hand, while a Montana LLC operating agreement isn't required by state law, it’s no less important for your small business. Create this legal document early on to protect your assets from the moment of incorporation.
Key Takeaways
A Montana LLC operating agreement isn't required by state law to form a limited liability company.
An LLC operating agreement offers numerous advantages to business owners, including reinforcing your LLC status.
Drafting an operating agreement properly can be challenging, but a professional service can ensure its legal compliance and comprehensive coverage.
Don’t be forced to operate under default state guidelines that don’t fit your business. Shield your assets and set your own rules for your LLC with a proper Operating Agreement.
What Is an LLC Operating Agreement?
An LLC operating agreement is a legal document providing essential information about your LLC's business structure and organization. While this document doesn't legally need to be in writing, drafting a written contract will spare you a lot of legal headaches in the future.[2]
All the LLC members should participate in this agreement and receive a copy after signing it into effect. Members will also be protected legally while knowing their responsibilities and rights following the LLC formation.
Include the following in your operating agreement:
Basic business information
Basic information about each member
Management structure
Voting rights and decision-making powers
Profits, losses, and distributions
Membership rules
Bookkeeping procedures
Dissolution provisions
State Requirements
The Montana Limited Liability Company Act clearly states that "all members of a limited liability company may enter into an operating agreement.”[2] This means that the state law doesn't require your Montana LLC to compose this document when filing for incorporation.
However, this isn't the case for business owners wanting to form a Series LLC, which is a "parent" LLC with multiple "child" LLCs, each with separate assets and liabilities.[3] With this LLC type, an operating agreement is crucial to defining the liability limitations of each series.
LLC Operating Agreement Benefits
Your LLC doesn't need an operating agreement by law. So, why go through the hassle of crafting it?
Check out why submitting an operating agreement protects your interests and ensures clarity in business operations.
Open a Business Bank Account
In Montana, opening a business bank account includes presenting a written copy of the LLC's operating agreement. Since having a separate bank account for your business is crucial for proving its limited liability status, you won't want to skip this step.
Gain a Shield Against Personal Liability
Most legal advice will suggest drafting an operating agreement. This document makes the critical distinction between the LLC member and the LLC itself in the eyes of the court. With an operating agreement in place, no one can go after your personal assets, such as your house, car, or savings.
Keep the State Out of Your Business
While it doesn't mandate it, Montana state law does recognize an LLC operating agreement. It even allows this legal document to "override" specific state laws, such as the division of profits according to ownership percentage. This way, your LLC doesn't have to be governed by Montana statutes that don't fit your business plan and model.
Who Needs an Operating Agreement?
Technically, no business entity needs an operating agreement in Montana. Since this document isn't required by state law, your Montana LLC formation can proceed without it hassle-free. However, this shouldn't stop business owners from procuring this document and securing their interests.
But is an operating agreement beneficial to all types of businesses? No, this document is only reserved for LLCs, regardless of the place of business. If you're starting another business entity, like a sole proprietorship or a corporation, there's no need for an operating agreement.
As for LLCs, these companies can craft an operating agreement, regardless of the size and type. So whether you run a single-member LLC or want a Montana S corp designation, the operating agreement should be a part of your business formation.
Drafting Your Montana LLC Operating Agreement
Drafting a Montana LLC operating agreement requires information about you, the other members, and the organization as a whole. Unlike the Articles of Organization, this written operating agreement is considered an internal document. You don't have to submit it to the Montana Secretary of State and pay a filing fee.
Still, this is a legal document. It must comply with state law and include all the essential provisions. Read our breakdown of each essential section of this agreement, and you'll know what to expect when drafting this document.
Step 1: Provide Business Information
Let's start off with the basics. The introductory portion of your operating agreement should include the basic information about your LLC. This section will list much of the same information included in the Articles of Organization, such as:
LLC name
Montana registered agent
LLC duration
LLC purpose
Principal place of business
Make sure to list your business name exactly as it's written in the Articles of Organization since Montana has strict naming conventions for LLC formation.
Step 2: List LLC Members
This step will be a breeze if you're starting a single-member LLC. Just list your own name. If a multi-member LLC is in the making, you must include a few other details.
Namely, an operating agreement must name all the members of an LLC, clearly stating how much each is involved in the business formation. By this, we mean the following:
Full legal name, address, and title
LLC membership interest with members' ownership percentages
Initial capital contributions that breakdown how much each member deposited or plans to deposit into the LLC's bank account
You can also include an indemnification clause to protect members against losses, damages, and liabilities from legal proceedings and similar events.
Step 3: Decide Member-Managed vs Manager-Managed
The business owner must define whether the LLC will be member-managed or manager-managed.
The former option means that all the LLC members can handle the business's day-to-day operations and legally bind the LLC in contracts and agreements. Single-member LLC owners prefer this LLC management structure, granting them complete control over business operations.
In a manager-managed model, on the other hand, one or more independent managers are appointed to perform the daily tasks of running a business. This model presumes that other members have a passive or an investor role in the LLC operation. However, they will still be required to vote on specific subjects and vote the manager(s) into their position.[4]
Step 4: Layout Administrative Operations
As an internal document, an operating agreement should describe clear ways of handling specific situations that might arise during business operations. This includes, but is not limited to, the following:
Tax clarification: How will your LLC be taxed (as a sole proprietorship, partnership, S corporation, or C corporation)?
Voting rights: Who has the voting powers within your LLC, and to what extent? What does it take to win a vote?
Member duties: Who runs the show day to day? How often must members meet to review business operations?
Profit and loss distributions: How and when will profits and losses be split once your business is underway?
Bookkeeping: How should the accounting of your LLC's affairs be maintained?
Step 5: Add and Remove LLC Members
Over time, there will probably be some changes to your LLC's membership. New members might join your LLC, while others might pursue other opportunities or sell their membership interests. Whatever the case, your operating agreement should clearly define what to do in such scenarios.
This entails defining what buy-in new members must make before becoming a part of your LLC and how to approach the ownership percentage of the leaving members or the buy-out. It would help if you highlighted who from the remaining members or external parties can purchase this interest.
With these provisions clearly defined, adding or removing LLC members is a matter of voting and granting unanimous written consent.
Create Your Operating Agreement Through a Filing Service
As you can see, your Montana LLC operating agreement must cover a wide range of provisions and scenarios. Only then can you rest assured no unexpected disputes or misunderstandings will interfere with operating your business.
However, compiling all these provisions and formulating them in a clear way that can't be challenged is no easy task. That's why bringing in experts to give you a hand is an excellent idea.
Whether you've already filed for your LLC or are just checking what goes into LLC formation, Swyft Filings has everything you'll need. Our experts will draft an ironclad operating agreement to give you much-needed peace of mind. Instead of stressing about missing a crucial section, you can focus on what you do best — running your Montana LLC.
FAQs
Is an LLC operating agreement required in Montana?
No, an LLC operating agreement isn't required in Montana unless you're starting a Series LLC. Still, this document is strongly recommended.
How does an LLC operating agreement help protect my assets?
An LLC operating agreement protects your assets by proving your business is a separate legal entity from your person and confirming the company's limited liability status.
Who needs access to an operating agreement once it's drafted?
Once the operating agreement is drafted, only LLC members need access to it. In other words, you don't have to submit it to the Montana Secretary of State or any other government agency. However, you might need to grant access to specific government agencies or courts in case of a lawsuit or an audit. Also, you'll need to show it to your bank if you want to open a business bank account or apply for a loan.
How do I edit information on this document if membership changes?
The operating agreement itself should include instructions on how to approach membership changes. In most cases, all LLC members must sign off on any amendments, including membership changes, before they can go into effect.
What other legal documents do I need drafted for my Montana LLC?
The Montana Articles of Organization is the only other legal document you'll need to draft to start an LLC in Montana. This document will contain your LLC's business name, address, registered agent, and other essential information for the company's operation. You can submit it via the ePass Montana portal.
Bibliography
Montana Secretary of State. "Business Models & Glossary." Accessed June 30, 2023.
Montana Legislature. "Montana Code Annotated 2021: General Provisions." Accessed June 30, 2023.
Montana Legislature. "Montana Code Annotated 2021: Formation." Accessed June 30, 2023.
Montana Legislature. "Montana Code Annotated 2021: Relations of Members and Managers to Persons Dealing With Limited Liability Company." Accessed June 30, 2023.
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