Montana business owners have important decisions to make about how they will operate their business. One of them is the legal business structure they will use.

Owners who choose to operate as a limited liability company (LLC) can benefit from liability protection and tax flexibility. As owners set up an LLC in Montana, it’s important to develop an operating agreement among the core operating documents.

What Is an LLC Operating Agreement?

A Montana LLC operating agreement is a legally binding document that details essential elements of how the company will be run. It is usually developed by the owners (called members) to determine how the business will be run.

Elements of the agreement detail how core decisions will be made, along with the financial commitments, roles and responsibilities and ownership stakes of each member. It also provides information on votes, meetings and how profits and losses are distributed, and how the company will be dissolved.

An LLC operating agreement serves two core functions.

First, it gives you and other members protection in the face of disputes or conflicts. A well-detailed LLC operating agreement makes it clear how the business runs and can reduce the risk of disagreements slowing down how the company runs. It can also reduce the risk of having to pay costly legal bills to resolve those disputes.

Second, it gives everyone clarity about business operations and what each members’ responsibilities are to the business and each other.

Why Is an Operating Agreement Important for Montana LLCs?

Operational clarity

The operating agreement details all the roles and responsibilities for the members. In addition, the agreement allows for customized operational processes that play to the expertise of the members.

Liability protection

Liability protection is one of the core reasons business owners select an LLC business structure.

An operating agreement provides a corporate veil, a legal term used to describe the separation of a business and its owners. With a clear, well-developed operating agreement, you gain additional protection in many cases if there is litigation against the company. This protection is particularly true in single-member LLCs.

Dispute resolution

Disagreements among business partners can strain relationships and put companies at risk. A Montana LLC operating agreement protects everyone by explicitly detailing key components of disputes, such as ownership percentages and voting procedures.

Growth mindset

An operating agreement helps identify the structure and operational details that can allow for easier additions of new members and assist with onboarding.

Credibility

Your company will depend on banks, investors, vendors and partners for success. An operating agreement lends credibility to third parties that want to business with owners who take their work seriously.

Key Components of a Montana LLC Operating Agreement

There are many sections you can include in your operating agreement. Here are some of the standard ones.

Ownership structure

Along with basic information about the business and its owners (date of founding, names and addresses), the ownership structure is among the most critical. The ownership structure section details the percentage ownership each member has in the company.

You will also want to detail what, if any, capital commitments each member provides to the business.

Member roles and responsibilities

Who does what in your Montana LLC? An operating agreement explains each member’s roles and obligations in running the company, both for a daily matters and broader, more critical decisions.

Voting rights and decision-making

Typically, voting is weighted based on the ownership percentages of each members. So, if one member has 60 percent ownership, and four other member 10 percent ownership each, the member with the 60 percent ownership stake can carry a vote. \

Each LLC will have a unique ownership structure and manage voting accordingly.

In addition, most LLCs use the operating agreement to detail how decisions are made. Many agreements have provisions that limit the decisions that any one member can make, especially around core issues like taking out mortgages or loans, major purchases or partnerships with other businesses.

Profit and loss distribution

What happens with the profits and losses the company has over the course of the year. It’s important to include those details in your operating agreement.

It’s common to have a sequence in which profits are allocated. Mortgage and loan obligations are made first, followed by establishing cash reserves, with payouts to members finishing the disbursement cycle.

Dissolution terms

It’s important to plan for the possibility of a dissolution of the business. This information develops the steps taken when a dissolution is considered and the events, such as a death or disability of a member, that can trigger a dissolution.

How to Create an LLC Operating Agreement in Montana

There are no specific rules by which you need to create your Montana LLC operating agreement. That’s why it’s important to use a trusted partner and consult a legal professional, if necessary.

Montana-Specific Considerations

In Montana, you can opt for a verbal operating agreement but most experts encourage a written document that is safely stored with each member.

Final Thoughts & Next Steps

An operating agreement is a smart choice for your Montana LLC. You’ll have peace of mind and confidence that you’ve taken the right steps towards organizing your business.

Online services like Tailor Brands are an excellent option for those looking to create an LLC, their operating agreement and the other documents necessary to launch your company. 

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