Oklahoma is a business powerhouse. This state offers robust incentives and a low tax burden, making it the perfect place to start a business. Local business owners appreciate the state’s supportive economic environment and its low cost of living.

The Oklahoma small business environment, in particular, shows great promise, with insights from the U.S. Small Business Administration revealing that there are over 362,000 small businesses in Oklahoma, which employ over half the state’s workers.

For many aspiring business owners, this journey begins with launching a limited liability company (LLC). These entities achieve the best of both worlds: the flexibility of sole proprietorship or partnership plus the credibility and liability protection of a corporation.

The term ‘LLC’ describes a specific type of business structure, legally recognized at the state level and distinguished by its ability to separate personal and business liabilities.

The business operating agreement fulfills a critical function when establishing and running an LLC: this clarifies internal roles, responsibilities, and rules, with the goal of preventing disputes in the future.

This document does not always receive the attention it deserves, so we will clarify its value below — along with helpful suggestions for how to draft an operating agreement that sets your Oklahoma LLC up for success.

What is an LLC Operating Agreement?

Before you start drafting official documents, it’s important to clarify: what is an Oklahoma LLC operating agreement? Simply put, this is a legally binding document that defines the internal workings of a limited liability company.

Despite this basic definition, however, operating agreements are rarely simple — they include many details that help identify and govern LLC members’ rights and responsibilities. This acts as an LLC roadmap, influencing all other decisions to come.

The operating agreement should not be confused with the articles of organization, which legally form the LLC. Both are important, but the articles of organization form the basis for all other documentation to follow, while the operating agreement serves as a supplement to provide clarification above and beyond the details outlined in the articles of organization.

Why is an Operating Agreement Important for Oklahoma LLCs?

Although not strictly required in order to start an Oklahoma LLC, operating agreements are strongly recommended, as they can provide powerful guidance and protection for LLC members.

After all, while Oklahoma LLCs can take advantage of many state-specific incentives and opportunities, these businesses also face a few unique risks: internal friction, member departures, or structural changes related to LLC ownership.

An Oklahoma LLC that lacks an operating agreement is more vulnerable to disputes among members, which, eventually, could lead to full-on legal battles. Meanwhile, single-member LLCs that lack operating agreements maintain fewer layers of protection. The result? Greater difficulties separating (or demonstrating the separation of) personal assets from business assets.

Another major risk involves the use of default rules, which come into play when LLCs fail to establish alternative protocols. In many cases, these default rules do not accurately reflect the needs or preferences of Oklahoma business owners.

Key components of an Oklahoma LLC operating agreement

The decision to draft an operating agreement should be simple: this document is always advisable for Oklahoma LLCs. That being said, things get more complicated as you determine how to draft an Oklahoma operating agreement or what to include. These are not quite as straightforward as articles of organization, and, while some businesses find this enhanced flexibility appealing, it could potentially be a point of confusion.

When in doubt, remember: there is no one right way to draft an operating agreement in Oklahoma. A lot depends on the purpose of the LLC: the target market, for example, along with the specific products or services that LLC provides.

Still, most operating agreements tend to touch on a few key concerns. Keep these elements in mind as you take the first step towards drafting your Oklahoma operating agreement:

• Ownership structure. Identify all LLC members (owners) and their ownership percentages. Clarify which members own specific portions of the business.
• Member roles and responsibilities. Explain each member’s responsibilities as they relate to the business. Confirm that the LLC is either member-managed (run by the members) or manager-managed.
• Voting rights and decision-making. Clarify how LLC members work together to make important decisions: does each member have equal voting power, or is this tied to ownership percentage?
• Profit and loss distribution. Determine how the LLC will allocate profits and losses. Remember: by default, these are distributed according to ownership percentage.
• Dissolution terms. Design a “get-out” clause that explains what will happen if the LLC is dissolved. Dissolution terms should clarify how, should the LLC eventually wind down, remaining profits and distributions will be handled.

Operating agreements are highly flexible and could easily touch on concerns not identified above. Ultimately, however, this document focuses primarily on the various financial and operational provisions that will help LLC members navigate challenges effectively while also setting the business up for long-term success.

How to create an LLC operating agreement in Oklahoma

Drafting an Oklahoma LLC begins with clarifying the ‘why’ behind this business. This is important, in part, because the LLC’s mission, vision, values, and objectives relate closely to the how of eventual LLC operation. This will also form a valuable guide for decision-making, which can be easier to navigate if everybody agrees on the bigger picture of the LLC and its core purpose.

Establishing LLC rules and procedures

With overarching concerns covered, you can begin to explore the specific terms of the LLC. With multi-member LLCs, this effort may be collaborative, as it’s important to get all members on the same page. Use detailed language, even if you plan to launch a single-member LLC; seemingly small distinctions can make a world of difference later on.

Be sure to do your research so you understand specific rules and procedures in Oklahoma — this can influence operating agreement terms, especially when they diverge from the state’s default rules.

Use templates or seek legal representation

Legal representation is not strictly required when drafting an operating agreement. Despite this, many LLC members consult with attorneys. Through targeted legal representation, you can feel confident that your LLC not only abides by Oklahoma requirements, but also, helps you avoid legal disputes in the future. That being said, you can use a template or an online service to guide this process.

Take next steps

Once the Oklahoma operating agreement is complete, make several copies and distribute them among LLC members or managers. Be prepared to revisit the operating agreement from time to time, revising as necessary based on evolving operations or the addition of new members. Unlike the articles of organization, the operating agreement does not need to be filed with the state of Oklahoma.

Oklahoma-specific considerations

Each state maintains distinct requirements related not only to the articles of organization, but also, governing operating agreements or the default rules that are adopted if these agreements are not drafted.

The most important thing to remember is that, in Oklahoma, an operating agreement is not legally mandated. Yes, operating agreements are important, but for reasons unique to your LLC — this is not simply a matter of checking off another box for the sake of compliance.

Title 18 of the Oklahoma Statutes (and specifically, Chapter 32) offer valuable insight into the state’s default approach to governing LLCs. Be sure to consult these statutes before finalizing your LLC operating agreement. These statutes offer insight into management structures, profit and loss distributions, and voting rights — all critical areas that could have a huge influence on your LLC and its operations.

Final thoughts & next steps

It’s exciting to form an LLC in Oklahoma, but, while this business structure aims to address the risk of liability, it also carries some element of risk — namely, the risk of disputes, which can quickly escalate and threaten core operations.

The good news? These disputes are easily avoided if potential issues are proactively addressed via Oklahoma operating agreements. Drafting this agreement does not need to be difficult; plenty of resources are available, including templates and legal advice.

If you’re ready to take the next step toward launching a successful LLC in Oklahoma, feel free to reach out. We can help you navigate essentials like the articles of organization, operating agreements, and other business formation and registration essentials.

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