Registering an LLC in Louisiana requires filing Articles of Organization with the state’s Secretary of State, and you may have to submit state or local license applications as well. Another document that you’re strongly recommended to create is an operating agreement for your LLC.

Although Louisiana doesn’t legally require that limited liability companies have operating agreements, there are several reasons why you should. It’s also not too difficult to draft an operating agreement with our LLC formation tools.

What is an LLC operating agreement?

An LLC operating agreement is a legal document that outlines how your limited liability company works. It outlines ownership structure, roles and responsibilities, member voting rights, distributions, dissolution and more.

By clearly defining these details, an operating agreement helps ensure smoother operations and protects members. This document is useful during routine operations, and especially so when difficulties or disagreements arise.

What’s the Difference Between Articles of Organization and an operating agreement?

Your LLC’s Articles of Organization and its operating agreement serve two distinct purposes.

The Articles of Organization are primarily for the state. They get filed with the Louisiana Secretary of State, and inform the state that you have a limited liability company.

In Louisiana, the Operating Agreement doesn’t get filed with the state. Instead, it’s an internal document that your LLC keeps for its own purposes.

Why is an Operating Agreement Important for Louisiana LLCs?

Although Louisiana state law doesn’t require businesses to have operating agreements, not having one can cause your business issues in the future. The following are some of the reasons to draft and formalize an Operating Agreement:

• Member Roles and Rights: Perhaps the most important function of an Operating Agreement is to define each member’s (owner) position within the LLC. A good agreement will clearly define ownership percentages, voting rights, and the roles of each member involved.
• Dispute Resolution: Having defined ownership percentages, voting rights and distribution arrangements can help resolve disputes that might arise between member-owners. This can greatly reduce legal fees that would otherwise arise if no formal agreement was in place.
• Financial Management: Profits and losses should be covered in detail. This includes both stating when distributions are made or additional contributions are needed, and each member’s payment or responsibility in these situations.
• Buyout and Succession Plans: What happens if a member wants to leave, becomes disabled, or passes away? An operating agreement can outline clear procedures for buyouts, transfers of ownership, and succession.
• Liability Protection: An Operating Agreement alone won’t prove that your business is a limited liability company. If there’s a challenge over whether your business is an LLC, sole proprietorship or partnership, however, an Operating Agreement might serve as supporting evidence that you operate as an LLC.
• Financing: In some cases, lenders might require a comprehensive Operating Agreement as part of the underwriting process. Having one is broadly recommended regardless of financing, however.

Not having an Operating Agreement can have disastrous consequences when something happens. Disagreements among members, deaths and divorces, financial struggles, and lawsuits can lead to bitter fights and worse. In many cases, businesses find themselves in expensive legal battles when these things happen and there’s no Operating Agreement.

Key components of an operating agreement in Louisiana

There are many details to cover in an Operating Agreement. A well-structured one will contain all of the following.

Ownership structure

Every owner should be clearly identified as a member (i.e. owner), and their ownership stake specified. Additionally, include what contributions each owner is responsible for and what distributions they’re due. Contributions should be covered both now and in the future.

Sometimes ownership structure is straightforward, such as when each owner has an equal share and equal responsibilities. In other situations, the ownership structure details can be much more nuanced. For example, each member of a three-owner LLC might have a different ownership stake, and different financial obligations.

Member roles and responsibilities

Member roles begin with defining whether the LLC is member-managed or manager-managed. All owners are involved in the operations of member-managed LLCs. In manager-managed LLCs, one or more specified members run day-to-day operations. 

Additionally, each member should be identified as an active manager or passive investor. This is particularly important for manager-managed LLCs, where not everyone runs operations.

The member roles and responsibilities section should also cover financial responsibilities, operational responsibilities, and other role-related details for each owner. It may be prudent to cover specific domains if multiple members are involved in operations.

Voting rights and decision-making

Voting rights and decision-making cover the big decisions, in contrast to the daily decisions that fall under roles and responsibilities. Business expansion, major contracts, financing, adjusting ownership, and similarly large decisions are voting matters.

When addressing these matters, it’s important to cover both when and how decisions are to be made. Regarding how, cover:

• General process for amending the agreement
• Each member’s voting power
• Quorum requirements for meetings

You can also include deadlock provisions, which would kick in if there’s a true stalemate amongst members. These provisions are usually either arbitration or mediation.

Profit and loss distribution

Hopefully your LLC brings in profits, but an Operating Agreement should prepare for either profits or losses.

This section should explain how profits and losses will be distributed among members, which doesn’t necessarily have to be proportional to ownership stakes. Make sure to include when profits are distributed.

Regarding losses, include when and how capital calls can be made. Each member’s responsibility if there’s a future capital call should also be included.

Dissolution terms

In the event of dissolution, you’ll want to predetermine the specific procedures for distributing any remaining assets or debts. Assets can include money, physical assets, and even potentially intellectual property. 

The conditions for dissolution should be specifically included here, even if they’re also in the voting and decision-making section. Just be sure that the two sections don’t contradict each other.

How to create an operating agreement for a Louisiana LLC

Creating an LLC Operating Agreement involves several steps. Most of these are straightforward, but they can involve difficult decisions and need specific details. The general steps are:

• Gather Member Information: Get the full names and initial contributions (financial and otherwise) of each member. You can also check whether any embers have past felonies or fraud charges. This isn’t necessary now, but lenders might ask in the future.
• Draft: Draft the agreement, including the sections above and any others that are pertinent. There’s often some negotiation before terms can be finalized.
• Sign: All members must sign the Operating Agreement. In Louisiana, the agreement doesn’t have to be notarized.
• Store: The agreement should be safely stored, and preferably in at least two locations in case something happens. A best practice is to keep a paper copy on file with other business documents, and a digital copy stored securely in the cloud. It’s not a bad idea for each member to have their own copy, too.

Drafting an operating agreement yourself isn’t recommended, Business owners don’t always know what to include — the sections here are standard but not comprehensive — and there also can be nuances as to how sections are worded. You’ll want all details properly covered.

In many cases, a good operating agreement can be drafted by customizing a standard template. You can find a template as part of the Tailor Brands LLC Formation Services.

Your LLC might require more in-depth advice, however. A qualified Louisiana business attorney can ensure your agreement is legally sound, protects member interests, and complies with all state-specific regulations. An attorney is often recommended for any more complex Operating Agreements.

Louisiana-specific considerations

There are several state-specific considerations to consider when drafting an Operating Agreement for a Louisiana LLC:

• State Laws: LLCs in Louisiana are primarily governed by Louisiana Revised Statutes (LRS) Title 12, Chapter 22. Your Operating Agreement must comply with these statutes. These are what will directly govern any matters that your LLC’s Operating Agreement is silent on. Consult a business attorney if you have any questions, especially because Louisiana’s French-influenced laws are different from other states’ laws at certain points.
• Community Property: Louisiana is a community property state. For married spouses, any assets that one spouse gains are also the other spouse’s. Assets — possibly including business ownership or distribution rights — could be divided in the event of divorce or dissolution. This specifically ought to be addressed in the Operating Agreement.
• Perpetuity: Louisiana assumes that LLCs have a perpetual duration unless otherwise specified. If you know the LLC will be dissolved at a certain time, explicitly state when.

Final thoughts & next steps

Creating a clear and comprehensive LLC operating agreement is crucial for smooth operations, conflict avoidance, and legal protection. While Louisiana doesn’t mandate having one, your business probably should.

Creating an LLC Operating Agreement is simple with the Tailor Brands LLC Formation Services. Draft one as you go through the formation process.

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