A Limited Liability Company, also known as an LLC, is a flexible and straightforward corporate set-up in the United States that shields business owners, founders, and partners from personally incurring the financial debt and liabilities of the business. As the name implies, it limits the business liabilities that owners of a business can suffer personally.
In Indiana, an Indiana LLC Operating Agreement is a binding oral or written agreement between members of an LLC, which also details the management of the business.
Therefore, Indiana law is essential and recommended for all LLCs to furnish themselves with an operating agreement.
Furthermore, it provides the business with “pass-through taxation” (this is when the business is exempted from paying the tax directly but pays through the personal tax returns of its members). An LLC merges the attributes of sole proprietorship or partnership with that of a corporation. Business owners in an LLC are called “members”.
The 2019 Indiana Code Title 23, Chapter 18, governs all aspects of articulating a Limited Liability Company in the state. IC 23-18-2 is concerned with regulating an LLC organization and the powers available to it and its members. Forming an LLC in Indiana is under the Indiana Business Flexibility Act, which requires filing a legal document called the Articles of Organization to create a Limited Liability Company.
It is a legal document, which structures the financial and functional decision-making procedures of an LLC. Although the law in Indiana does not require it, members of an LLC should have an operational agreement, as it clarifies the agreement between members, protects the business and provides a smooth and structured running of the business.
Cost of Filing LLC Articles of Organization in Indiana
Forming an LLC in Indiana requires members to file the Articles of Organization with the Secretary of State (SOS), Business Services Division. It is a one-off payment of $95 for online filing and $100 to file via mail. In addition, it costs $20 to reserve an LLC business name with the Indiana Secretary of State (SOS).
Indiana State requires LLCs to file a biennial (every 2 years) report to maintain an active status. This report is a Business Entity Report. The cost of filing this report is $50 by mail and $31 online.
Types of Indiana LLC Operating Agreement
There are three types of LLC operating agreements in Indiana. They are classified based on membership and control patterns. They are:
Indiana Single Member LLC Agreement
This is for LLCs owned by only one person who will also be the manager of the LLC. Such a person should have an operating agreement despite being the sole member for many reasons; to enable the running of the business by an assistant manager in the absence of the owner, and for a smooth interface between the business and other third parties (e.g., banks and tax offices).
Download: Microsoft Word (.docx)
Member Managed Multi Member Agreement
This applies to LLCs with multiple members who will also jointly manage the business's operations. The agreement stipulates the agreed-upon divisions of each LLC member, their roles, and processes governing the company's operations.
Download: Microsoft Word (.docx)
Manager Managed Multiple Member Agreement
This applies to LLCs formed by multiple members with non-member manager(s) administrating the company. Members and managers roles are expatriates in an operating agreement.
Download: Microsoft Word (.docx)
Single-Member LLC operating agreement: this is for LLCs owned by only one person who will also be the manager of the LLC. Such a person should have an operating agreement despite being the sole member for many reasons; to enable the running of the business by an assistant manager in the absence of the owner, and for a smooth interface between the business and other third parties (e.g., banks and tax offices).
Member-managed multi-member LLC operating agreement: this applies to LLCs with multiple members who will also jointly manage the business’s operations. The agreement stipulates the agreed-upon divisions of each LLC member, their roles, and processes governing the company’s operations.
Manager-managed multiple-member LLC operating agreement: this applies to LLCs formed by multiple members with non-member manager(s) administrating the company. Members and managers roles are expatriates in an operating agreement.
Reasons for Having an Indiana LLC Operating Agreement
LLCs without an operating agreement would use the dictates of The Indiana Business Flexibility Act. However, it is prudent for members of an LLC to create an operating agreement that will be better suited for their company.
Some of the benefits of having an Indiana operating agreement are as follows:
Resolve disputes
An LLC operating agreement codifies dispute resolutions as agreed upon by all members for all possible and future conflicts that might arise between members. For example, it states the number of possible votes required to pass a decision, the voting procedure, and the rights and obligations of each member. It could also contain processes involved in getting an involuntary dissolution by the court if there is no headway.
Flexible LLC
The operating agreement of an LLC can be easily modified to accommodate the changing needs of the LLC as it grows. The flexibility of the LLC is also the ability of LLCs to deviate from the default rules stated by the laws of the state to a customized rule via the operating agreement. The flexibility of the LLC also allows for “pass-through” taxation practices.
Other benefits of flexible LLC include management flexibility (no formal management structure that governs other business types), ownership flexibility (pass-through taxation without restrictions) and profit-sharing flexibility (free to create a profit-sharing formula not based on shares).
Protect LLC status
The operating agreement limits the personal guilt of the company owners for the company’s debt and liabilities. In addition, it protects the member’s assets from the company while establishing it as a separate legal entity distinct from its members.
Open financial accounts
An LLC requires an LLC bank account that will rightly differentiate between the finances of the company and the owner(s). In addition, a copy of the operating agreement is required by banks and other financial institutions to furnish the LLC with their services.
Proper running business
With all rules of engagement and practices clarified in the operating agreement, the daily running will be smooth and procedural. Managerial mishaps will reduce to the barest minimum and change in management will have little to no adverse effect on the company.
Recommended by state
The Indiana Business Flexibility Act encourages LLCs to create an operating agreement (IC 23-18-4-4) to prescribe procedures for the company’s proper running and protect the rights of the company.
Information to be Included in Indiana LLC Operating Agreement
The general information to be included in Indiana LLC operating agreement is as follows and vital:
LLC name
Like in every other legal document, an Indiana LLC operating agreement needs to bear the name of the legal entity a party to the agreement. The operating agreement requires the company’s legal name and DBAs (Doing Business As or fictitious names the business operates under). This recognizes the LLC as a separate legal entity and all members of the LLC agreement. The name must carry a “limited liability company” at the end or any of its abbreviations (LLC, LC).
Ownership details
Another required crucial detail is the information of all the LLC owners in agreement. It bears the legal names and other names of each member of the LLC. It also details all their personal residential information and business addresses. This section also carries information about each member’s contribution to the LLC and the respective percentages.
Member rights and responsibilities
An operating agreement clarifies all member rights and responsibilities. This information for a single-member LLC specifies that a sole proprietor in an LLC possesses all voting rights in the LLC. For a multi-member LLC, the operating agreement specifies all the rights, including voting rights, vested in each member and their obligations. This section also details if members or managers will be managing the LLC and the scope of their duties.
Member voting structure
An Indiana LLC operating agreement structures the voting rights of each member and the voting method. All members of an LLC have the right to vote, but the managerial structure (member-managed or manager-managed) determines the extent of this right. For example, voting rights could vary based on contribution percentages or be made equal across all members. It also stipulates the passing of every decision and the number of votes needed.
Capital contribution
Capital contribution is the contribution (cash or non-cash) of all members of an LLC bequeath to the company from inception to the present. The initial contribution is called an initial capital contribution, and the operating agreement details each member’s initial capital contributions and subsequent capital contributions. This determines the ownership and share rights of each member.
Profit distributions
All members of an LLC must agree on a profit allocation structure for each member, and this detail must be contained in the operating agreement of the LLC. This will inform their profit distribution throughout the company or the presence of the member. Each year, members will receive a profit allocation that might not necessarily be distributed to them, but it must be communicated in their income tax.
Membership change process
In an LLC, a change in membership could arise for various reasons; one or more members may wish to sell their ownership stake (partial or complete), a new intending member, or death or disability of a member. A buy-sell agreement in the operating agreement will codify the processes members agree on and guide such future endeavors. Note that any internal change to the operating agreement should be updated with the appropriate government agencies and financial institutions (Article of Organization, banks, etc.).
Holding meetings
Indiana State law does not require LLCs to hold meetings to maintain their LLC liability protection, but members of an LLC can agree to hold meetings. These meetings are essential for a successful company. Members are likely to take notes of the frequency of the meetings, their mode (virtual or physical), and other guiding regulations (meeting minutes) in the operating agreement. The members can amend the meeting guidelines in the operating agreement later.
Record management
The Indiana State government does not require proper record management in an LLC, but it is necessary. It helps run the company safely and adequately guide essential documents required during a legal or tax problem. The operating agreement details an accurate record-keeping strategy of all decisions and amendments to the operating agreement.
Human resource policies
One of the critical resource company is human resources. This is the workforce in a company. Therefore, the LLC operating agreement should detail human resource policies to guide their present and future workers. Some details include salary structure, Paid Time-Off (PTO) plan, termination guide, vacation plan, and other information.
Operational rules
The operating agreement should specify rules that guide the operations of the LLC; these rules encompass every company’s activity. Additionally, it details the management structure of the company – if it would be member-managed or manager-managed – and its guiding principles. Finally, the operating agreement details the scope and limitations of the power of each member and manager.
Single-member LLC designation
In Indiana, single-member LLCs also need an Indiana LLC operating agreement to preserve their LLC status and acquire the attendant benefits (liability protection). This sets the single-member LLC apart from a sole proprietorship, while the operating agreement endows the single-member with total power on votes, decision-making, economic responsibilities, and benefits.
Severability provision
Severability clauses in contracts, like an operating agreement, prevent the invalidation of all parts of the agreement in the eventualities of a part being unenforceable or void. In effect, it saves other aspects of the agreement, which governs the company, and ensures the company’s sustainability if a part of the agreement is invalid.
How to File for LLC Status in Indiana?
The following steps are required when filing for an LLC status in Indiana:
Registered agent
Registered agents are professional registered companies or individuals that receive legal and tax documents on behalf of a company. They are also known as statutory agents or resident agents. Indiana state laws require entities filing for an LLC status to have a registered agent for their activities within the state. The owner or member of an LLC or individuals could serve as registered agents if they are above 18 years of age, can legally transact business in the state, and are residents.
Entity type
There are two types of LLC entities, which inform the filing format. They are Domestic LLCs and Foreign LLCs. Domestic LLCs are entities within Indiana that desire to form a new LLC to operate within the state. They file a domestic LLC with the Secretary of State of Indiana. Foreign LLCs are for LLCs already registered outside the State of Indiana and wish to expand their operations into the state. Both these LLC forms are available online or by mail.
Fee
Each LLC filing type has a fee attached to complete the application. For example, a domestic LLC has a $95 filing fee for an online application and a $100 filing fee via mail. In contrast, the Foreign LLC costs $105 for online applications and $125 for mail applications. The Indiana Secretary of State receives the fee along with the application.
Operating agreement
Indiana state does not require the LLC to submit its operating agreement while filing for an LLC status. However, the operating agreement should guide the company’s activities, its members, and its managers.
EIN
EIN (Employer Identification Number) is a Tax Identification number issued for filing and completing tax activities with the IRS (Internal Revenue Service) in Indiana. Multi-member LLCs are obligated to have an EIN with or without employees. Single-member LLCs do not need an EIN unless they have employees or wish to be taxed as a corporation.
Indiana LLC Operating Agreement Templates
We have provided free downloadable LLC operating agreement templates that cover every significant section of the agreement. However, the operating agreement is a profound and intricate contract. Therefore, we advise using a professional guide with the use of these easy templates, as sole proprietors or members agree and create their LLC operating agreement.
Frequently Asked Questions
Is an LLC operating agreement required in Indiana?
Indiana state does not require an LLC operating agreement. However, it is practical for LLCs to have an internal operating agreement for their protection. Therefore, in times of difficulties, the default state laws would bind LLCs without an operating agreement.
When should I create my operating agreement in Indiana?
It is sensible to create the operating agreement early during the formation of an LLC.
Can I write my LLC operating agreement in Indiana?
Yes, anyone can quickly create an LLC operating agreement in Indiana with free downloadable templates with or without a lawyer.
Do I need a lawyer for an LLC operating agreement in Indiana?
A lawyer is not necessary to create the operating agreement. Still, it is judicious to engage the services or guidance due to the importance and complexity of the document.