Wisconsin LLC Operating Agreement: Drafting Checklist

As a prospective small business owner, you have several choices for business formation. Incorporation is an option but comes with a specific structure and various tax requirements. Avoiding those issues is why many choose a Wisconsin limited liability company (LLC) as their business structure of choice.

Starting an LLC in Wisconsin is fairly simple. Submit your Articles of Organization to the Secretary of State, and you’re most of the way there. 

But there’s another aspect of creating an LLC in Wisconsin that isn’t required by state law but is recommended: drafting a Wisconsin LLC operating agreement. This article explains how to do just that.

Key Takeaways

• Wisconsin doesn’t require your LLC to have its own operating agreement, but the document is recommended.

• A Wisconsin LLC operating agreement protects your small business members and reduces the possibility of disputes.

• Your operating agreement is an internal document, so you don't need to submit it to the Secretary of State.

What Is an LLC Operating Agreement?

An operating agreement is an internal legal document that customizes the terms under which you manage your LLC. A limited liability company owner can choose to create this document either as part of their formation or at a later date.

The document’s primary goal is to outline the business's functional rules and processes in various scenarios. It’ll also usually contain some basic information about the LLC, often mirroring its Articles of Organization.[1]

State Requirements

Wisconsin state law states that an LLC may enforce and be bound by an operating agreement.[2] Simply put, your LLC isn’t legally required to have an operating agreement. But if you don’t create one, you’re bound by the state of Wisconsin’s default rules for managing an LLC.

Given that you don’t have to create an operating agreement if you don’t want to, you don’t have to submit the document to the Wisconsin Department of Financial Institutions (WFID). All they need are your Articles of Organization to enable you to transact business in the state.

LLC Operating Agreement Benefits

You’re not legally required to create an operating agreement to get your LLC up and running. But if that’s the case, you might wonder if you should make one since it doesn’t affect your business entity in terms of where and how it transacts business.

Like a business plan, an operating agreement may not be necessary, but it has various benefits that make the time and effort to create one worthwhile.

1. Secure Your Limited Liability Status

Of the many reasons business owners choose to form an LLC, the liability protection that comes with the business structure is often the most important. That liability protection is simple: it guards your personal assets against financial disputes and lawsuits involving your company.

You’re not personally liable for settling those disputes, so you can protect any real estate or other assets you own under your own name if you have an LLC.

That protection is automatic upon forming your LLC. But you can solidify it within an operating agreement by creating a legal document specifying that you benefit from this protection. If your limited liability is challenged, you have a document ready to prove it.

2. Avoid the State’s Default Rules

If you don’t create your own operating agreement, the rules the state implements apply. This becomes a problem if disputes arise in your business, as defaulting to state law gives you no control over how you handle the issue. The state essentially decides for you, which can leave LLC owners in disadvantageous positions.

You assert control over your own LLC with a written operating agreement. In doing so, you can customize how you run the business and provide members with a set of processes and rules that individuals in your company agree to follow in return for membership to your LLC.

3. Create Specific Written Processes

Who operates your business bank account? In the case of many small businesses, the answer comes down to whoever verbally agrees to do so at whatever point the account is created. 

Again, these verbal agreements are problematic. Disputes can arise, which may force you to seek legal advice to retain control over your bank account.

That’s just one example. You may assign many processes and responsibilities verbally in a small business with no documentation to prove that assignment.

An operating agreement puts everything on paper. Every process you create, ownership stake offered, and responsibility meted out to members is in a legally enforceable document you can refer to whenever needed.

Who Needs an Operating Agreement?

It's easy to argue that creating this agreement should be a priority as soon as you’ve secured a name and place of business.

You need an operating agreement if any of the following apply to you:

• You want to maintain as much control as possible in your LLC rather than applying state default rules when disputes arise.

• You want to ensure liability protection to prevent others from mistaking your LLC for a partnership or sole proprietorship.

• You want to lay the groundwork for future incorporation or transfer to S-Corp tax status by creating a defined structure within your LLC.

• You’re in the business formation process and want to future-proof your LLC for scaling.

Drafting Your Wisconsin LLC Operating Agreement

If it weren’t for the customizability of an operating agreement, drafting one would seem simple. You could use an LLC operating agreement template and not worry about submitting the resulting document to the Wisconsin Secretary of State.

The problem with this approach is that no two businesses are alike. Your rules and processes may not slot nicely into a template, making it necessary to create a written operating agreement that caters to your LLC’s needs.

Follow these five steps to create an operating agreement that’s made by your LLC for your LLC.

Step 1: Provide Business Information

If you’ve already started or completed the LLC formation process and have your Articles of Organization ready, the first step of creating an operating agreement is simple. Just copy the basic information from your formation documents into your operating agreement. 

This information includes:

• LLC name

• Place of business

• Details about what your company does and who it serves

• Information about your registered agent

It’s also worth noting that Wisconsin allows LLCs to operate under a “Doing Business As” (DBA) name. This is essentially an alternative name for your company. If you have a DBA name, enter it alongside your official LLC name in this section.

Step 2: List LLC Members

With the basic information completed, you can create a comprehensive list of all of the members of an LLC. This list serves two purposes: confirming the personal liability protection each member gets from the LLC structure and allowing you to assign roles, responsibilities, and ownership percentages to each member.

The latter purpose is essential. One of the key roles of an operating agreement is to prevent internal disputes that could derail your LLC. By defining ownership or membership interest and member contributions and distributions, you ensure every member knows where they stand.

Don’t make the mistake of assuming this step only applies if you have a multi-member LLC. If you’re creating a single-member LLC, you’ll still create a list of one to guard your personal assets and prevent others from assuming that you have a sole proprietorship.

Step 3: Decide Member-Managed vs Manager-Managed

The management structure is next on the agenda. You should assign somebody, be it an individual or an organization, to handle the day-to-day issues of LLC management. 

The state of Wisconsin allows you to select either a manager-managed or member-managed structure, each with pros and cons.

Under the manager-managed structure, you assign a third party to oversee your LLC’s operations. That means you have independent management. The opinions of members do not sway them because they focus solely on asserting the rules laid out in your operating agreement. 

A manager-managed structure is best for the following LLCs:

• Multi-member LLCs in which no member wants to take responsibility for day-to-day management

• LLCs that could benefit from independent oversight

• Single-member LLCs where the owner wants to focus on running the business rather than handling the management structure

With a member-managed LLC, you elect a member, such as yourself, to handle day-to-day management. This internal-focused approach offers more control over your operations, though it can give rise to disputes if a member disagrees with the elected member’s management style. 

The member-managed structure is good in the following cases:

• You have a single-member LLC and don’t have the budget to pay an external manager.

• You want to retain full control over the management of your LLC.

• You have a member in the LLC who you trust to assert the rules and processes in your operating agreement.

Step 4: Layout Administrative Operations

With your members listed and a management structure created, you move on to one of the primary reasons to make an operating agreement: defining rules and processes. The goal here is to leave no room for argument. Every rule or process you specify must be crystal clear so administrative operations are handled without a hitch.

The catch is that every LLC is different. Your specific processes won’t match those of another business, so you may need more or fewer entries than other companies. 

Common administrative operations covered in this step include, but aren’t limited to:

• Creating a process to assign and define voting rights based on ownership percentages or member contributions.

• Defining how an owner or member can make capital contributions to the business.

• Assigning specific roles to members, such as management of a bank account or handling interactions with the Internal Revenue Service (IRS).

• Determining who files the annual report your LLC must send to the state.

Those are just examples, and you may customize this section extensively to cover the specific needs of your business. The key is simple: cover every operation or process you can think of to prevent disputes later.

Step 5: Add and Remove LLC Members

All businesses evolve. Some of those evolutions may involve your LLC members, with new members coming on board, affecting the ownership percentages of remaining members, or old members leaving. LLC business owners need processes in their operating agreements to handle these changes.

Examples of what to include here are:

• Details for welcoming new members and defining new member contributions

• Information about what you’ll do whenever a current member chooses to leave

• Steps to follow if your LLC is subject to a buyout

• Process for the business owners to follow if they decide to pass the company on to new owners

Again, don’t assume you can skip this step if you have a single-member LLC. Your business is likely to grow over time. That growth may include welcoming new members or investors into the fold, with this step ensuring you have a process in place to make doing so as smooth as possible.

Finally, creating a specific voting method for welcoming a new member into your LLC’s fold is worth it. That method is up to you, but having one ensures that every current member gets a say whenever you propose a change to your business.

Create Your Operating Agreement Through a Filing Service

Though creating an LLC operating agreement isn’t required by state law in Wisconsin, it’s still worthwhile for any small business. It solidifies your liability protection. Plus, business owners can use a Wisconsin LLC operating agreement to avoid potential disputes among their LLC members.

The five steps outlined in this article demonstrate how to create your operating agreement, but you may find the process too laborious or time-consuming. That’s where Swyft Filings and our array of services designed to help you start an LLC the right way come in.

Whether filing your Articles of Organization or creating your operating agreement, Swyft Filings can help. We’ve worked with over 300,000 businesses (and have over 30,000 positive reviews) on their filing needs. With prices starting from $0 (plus filing fees), our team offers a cost-effective way to start an LLC with as little hassle as possible. Get in touch to learn more.

FAQs

Is an LLC operating agreement required in Wisconsin?

Wisconsin statutes don’t require LLCs formed in the state to create their own operating agreements. However, you’ll be subject to the state’s default rules if you don’t create this document.

How does an LLC operating agreement help protect my assets?

In addition to helping you create an ownership structure, an LLC operating agreement solidifies the liability protection the LLC business structure offers.

Who needs access to an operating agreement once it’s drafted?

Typically, all members and owners of an LLC require access to the operating agreement and an external manager if you have a manager-managed structure. You may also need to provide access to certain professionals if you seek legal or financial aid.

How do I edit information on an operating agreement if membership changes?

You can define processes within the operating agreement to determine what happens whenever membership changes occur in your LLC.

What other legal documents need to be drafted for my Wisconsin LLC?

Your Articles of Organization are a must if you want to transact in the state of Wisconsin. You must also file an annual report each year, which you can do online via the One Stop Business Portal.[3]

Bibliography

1. State of Wisconsin Department of Financial Institutions. “Articles of Organization.” Accessed June 29, 2023.

2. Wisconsin State Legislature. “Chapter 183 – Uniform Limited Liability Company Law.” Accessed June 29, 2023.

3. One Stop Business Portal. “File Your Annual Report.” Accessed June 29, 2023.