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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.
You’ve decided to start a limited liability company in Utah and are collecting the necessary paperwork. Unlike a corporation, launching an LLC requires you to submit your Articles of Organization, also known as a Certificate of Organization.
But what about your Utah LLC operating agreement? Does the state law require it during or after your business formation?
Read on and learn the basics of Utah LLC operating agreements, including whether they’re mandatory and what goes into drafting one.
Key Takeaways
Having a Utah LLC operating agreement isn’t required by law, but it’s highly recommended.
Despite being optional, an operating agreement benefits your small business by providing personal liability protection.
A typical operating agreement includes basic business information, member information, administrative responsibilities, and guidelines for adding and removing business owners.
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?
The state of Utah allows you to register your limited liability company in person or online.[1] Whatever you opt for, you need to submit your Articles of Organization.
Most, if not all, Utah enterprises also have an operating agreement. An operating agreement is an internal document for your entity that reveals how you’ll run your business. For example, it can divide responsibilities and roles during your LLC formation so everyone’s on the same page. Also, this agreement defines your LLC status for legal purposes.
State Requirements
A Utah LLC operating agreement isn’t required by the Utah Department of Commerce or any other state body. No commercial code mandates you to enter into this agreement, but there are consequences for not having this document.
Namely, entities without an operating agreement fall under the jurisdiction of the Utah Revised Uniform Limited Liability Company Act (Chapter 3a of the 2012 Utah code).[2] In other words, a default state law applies to your organization if you don’t draw up this internal document.
When it comes to timing, Utah is fairly lenient in this respect. You can draft your agreement at any stage of your LLC formation, including before and after registering your enterprise.
LLC Operating Agreement Benefits
As previously noted, an operating agreement isn’t obligatory. So, there’s no harm done if you go on without one, right? Wrong.
Think about it — formulating a business plan or opening a business bank account isn’t mandatory either. But can you imagine your LLC without these two elements? On the one hand, the business plan steers your company in the right direction, whereas a bank account lets you customize your finances and protect personal assets.[3]
An operating agreement is just as important. Here are the reasons you should draft it for your entity:
Preserving Your Liability Status
The easiest way to prove to courts you’re an LLC is to show them your operating agreement. It includes many critical details, such as that your private assets are separate from personal ones. Consequently, you won’t risk personal liability if someone sues you or a court penalizes your company. All the expenses fall on your company’s shoulders.
Smoother Financial Decision-Making
Your financial decisions can make or break your chances of success. You'll need to improvise if you don’t develop a formula that tells you how you make your decisions. A thriving enterprise and improvisation rarely go hand in hand, so you should enter into an operating agreement.
You can use your document to outline how you’ll make your financial decisions. For example, the agreement may say that each decision requires voting. Additionally, you can incorporate a statement that no member can take out a loan without consulting other members beforehand.
Administrative Duty Allocation
Unless you divide tasks, your productivity may take a major hit. For example, determining who does what might take you a lot of time. By the time you strike a deal, you may have missed an opportunity to score a major profit. Even worse, multiple members may do the same task due to confusion.
Your operating agreement saves the day. LLC members can refer to it when unsure about their duties.
Who Needs an Operating Agreement?
An operating agreement is a must-have for all business owners, despite not being required under Utah state law. LLC entrepreneurs draft it for several reasons:
Ensuring their sole proprietorship or joint venture is unaffected by state default rules
Considering forming an S-corp or another business formation and want to divide responsibilities among multiple members
Proving their personal assets are separate from their business entity assets
Drafting Your Utah LLC Operating Agreement
Knowing a written operating agreement is beneficial is great. But you may not be able to capitalize on all the perks if you draft this legal document incorrectly.
You can take two routes here: draft and customize a Utah LLC operating agreement from scratch or download an LLC operating agreement template.
An inexperienced business attorney may tell you to write anything that comes to mind in your agreement. However, this legal advice is inadequate. You need to structure your internal document correctly, and these steps will help guide you through different scenarios.
Step 1: Provide business Information
The first step of drafting your operating agreement is just like starting your Certificate of Organization. You need to provide your business name and address. Other basic information is necessary to back your LLC formation up with a valid document.
Here’s an overview of all the details to include in this section:
LLC business name
Place of business physical address
Registered agent information
Employer Identification Number (EIN)[4]
Step 2: List LLC Members
You’ve introduced your company. Now’s the time to provide key information about your business owners.
This is another essential stage, whether you’re a single-member LLC or multi-member LLC. It gives key insights into the company's affairs and ownership structure and helps separate your personal assets from private property.
Add this information to your internal document for each startup member:
Names and addresses
Contributions for all LLC members
Members’ ownership percentages and voting rights
Step 3: Decide Member-Managed vs. Manager-Managed
Your LLC management structure dictates how your business works. It can influence your voting rights and the control you have over your decision-making.
On the one hand, you can opt for a member-managed hierarchy. Here, your LLC members perform your enterprise's day-to-day operations. Let’s take a look at the pros and cons of this system.
Pros | Cons |
|---|---|
• Total control over business operations | • Time-consuming |
• No loss of voting rights | • Harder to attract passive investors |
• Cost-effective |
On the other hand, a manager-managed LLC is mostly run by professional managers. Like the previous management structure, this solution has its advantages and disadvantages.
Pros | Cons |
|---|---|
• Time-saving | • Expensive |
• Easier management of large companies | • Delegates some control to managers |
• Attracts passive investors |
Step 4: Layout Administrative Operations
After determining whether you’ll run the affairs of the company through members or managers, you now need to describe how you go about various operating procedures, including:
Business bank activities
Communication with the Internal Revenue Service (IRS) for tax returns
Profit distributions and allocation according to capital contributions
Startup marketing activities
Day-to-day operations
Step 5: Add and Remove Members
All that remains is to clarify how you’ll add or remove members of an LLC. Even if you start as a single-member LLC, you’ll need this section to prepare for future membership changes.
Cover these points in your operating agreement:
Business attorney consultations for severability, indemnification, and buyout-related matters
Membership interest of new members
Ownership percentages of the remaining members when one leaves
Create Your Operating Agreement Through a Filing Service
If drafting a Utah LLC operating agreement for your small business seems like a toil, Swyft Filings can come to the rescue. We can draft a comprehensive operating agreement for your Utah business so that you can tend to more exciting parts of your enterprise.
Once your agreement is ready, we can also help you start an LLC faster by filing other essential paperwork. We’ll help keep your firm compliant with Utah state law and ensure your enterprise gets off on the right foot.
Set Your Own Rules: An operating agreement is your company’s founding document. Govern your business by your own guidelines, not the state’s.
Resolve Disputes: Set a binding agreement about the fundamentals of your business, covering ownership, rights, and responsibilities.
Protect Your LLC Status: Put a barrier between your personal assets and business liabilities.
FAQs
Is an LLC operating agreement required in Utah?
No. The state of Utah doesn’t require you to enter into an operating agreement, whether you’re forming or already have an LLC. Nevertheless, this document is key to avoiding personal liability and ensuring each member understands their role.
How does an LLC operating agreement help protect my assets?
An LLC operating agreement helps safeguard your assets by defining your limited liability status. It’s a legally binding document that proves your company assets are separate from personal funds. As a result, generally, no lawsuit can lead to personal asset repossession if your operating agreement is valid.
Who needs access to an operating agreement once it’s drafted?
Once you've drafted it, you need to grant all signatories access to your operating agreement. This way, they can verify the accuracy of the information provided therein. Other than that, you may only need to show the agreement to your attorney or judge in the event of litigation.
How do I edit information on an operating agreement if membership changes?
The original operating agreement is virtually invalid if you add or remove a member from your LLC. You’ll need to draft another version with the new membership structure. Also, every member listed in the document needs to sign it.
What other legal documents do I need to draft for my Utah LLC?
The only other legal document you should draft for your Utah LLC is your Articles of Organization. This is an obligatory document since it’s considered the birth certificate of your organization. You submit it to the Utah Secretary of State and wait a few days for the office to approve your document.
Bibliography
Utah Division of Corporations and Commercial Code. “Domestic Limited Liability Company.” Accessed June 23, 2023.
JUSTIA US Law. “2012 Utah Code.” Accessed June 23, 2023.
U.S. SBA. “Open a business bank account.” Accessed June 23, 2023.
IRS. “Do You Need an EIN?” Accessed June 23, 2023.
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