Operating Agreement LLC Alabama

A Alabama Limited Liability Company (LLC) Operating Agreement is an internal document that outlines how the LLC will operate. It defines the company’s ownership, management responsibilities, and internal procedures. Some refer to it as an Alabama Operating Agreement or Alabama LLC Company Agreement. Regardless of the name, it serves as the primary internal governing document for the LLC.

Many LLC owners create an Operating Agreement during formation, while others adopt one later as the business evolves. The document is not filed with the state and remains part of the company’s internal records.

Is an Alabama Operating Agreement Required?

Alabama does not require LLCs to adopt an Operating Agreement. Under the Alabama Limited Liability Company Law, the agreement may be written or oral. Even though it is optional, preparing a written agreement is strongly recommended. Without one, the LLC defaults to Alabama’s statutory rules in Title 10A, which may not reflect how the members intend to operate the business.

Why an Alabama Operating Agreement Matters

Maintains limited liability protection

A written Operating Agreement helps demonstrate that the LLC is treated as a separate legal entity. Courts may evaluate the company’s internal procedures when determining whether to uphold limited liability protections. For single member LLCs, this is especially important.

Accommodates Alabama Series LLCs

Alabama allows the formation of Series LLCs, which enables one LLC to establish separate “series” with distinct assets and liabilities. A written Operating Agreement is essential for clearly defining each series and maintaining legal protection.

Establishes internal rules and expectations

Alabama’s default statutory rules apply only when an Operating Agreement is silent. A written agreement allows members to specify how management decisions are made, how profits are shared, how votes are counted, and how disputes are resolved.

Required by financial institutions and third parties

Banks, lenders, and accountants often request an Operating Agreement when opening business accounts, issuing loans, or verifying ownership. The agreement helps confirm management authority and internal structure.

Key Provisions to Include in an Alabama Operating Agreement

A Alabama Operating Agreement typically includes the following:

Basic Company Details

• LLC name
• Business purpose
• Principal office
• Duration
• Federal tax classification

Alabama requires LLC names to include Limited Liability Company, LLC, or an accepted abbreviation.

Registered Agent and Office

• Identifies the Alabama registered agent
• Any change must be filed with the Alabama Secretary of State

Member Information

• Names and addresses of all members
• Ownership percentages
• Initial contributions

Capital Contributions

• Cash, property, or services contributed by each member
• Clarification that members are not automatically entitled to interest on contributions

Management Structure

• Whether the LLC is member managed or manager managed
• Description of authority, duties, and voting rights

Profit and Loss Allocation

• How profits and losses will be allocated
• How and when distributions will be made
• Confirmation that distributions may only occur when the LLC can satisfy its financial obligations

Tax Election

• Federal tax classification selected by the LLC
• Note that certain tax elections require additional IRS filings

Voting Procedures

• Member or manager voting rights
• Quorum requirements
• Decision thresholds for approving actions

Many Alabama LLCs base voting on ownership percentages unless stated otherwise.

Transfers of Interest

• Procedures for transferring ownership
• Rules for transfers due to withdrawal, death, or expulsion
• Buyout terms or valuation methods

Records and Bookkeeping

• How financial records, meeting notes, and tax filings will be kept
• Requirement to file the Alabama Business Privilege Tax Return annually
• Statement that failure to file may lead to penalties or administrative consequences

Compensation

• How members, managers, or officers will be compensated, if applicable

Dissolution

• Events that may trigger dissolution
• Steps for winding up affairs
• Filing Articles of Dissolution with the Alabama Secretary of State

Amendments

• How the Operating Agreement may be amended

Most Alabama LLCs require written member approval for changes.

Management Options for Alabama LLCs

Member Managed

Members handle day-to-day operations and may bind the LLC through authorized actions. This structure is common for smaller or closely held businesses. Voting authority typically follows ownership percentages unless the agreement provides otherwise.

Manager Managed

Members appoint one or more managers to run daily operations. Managers may be members or outside individuals. Members retain authority over major company decisions but do not run day-to-day operations unless authorized.

Creating and Maintaining the Alabama Operating Agreement

Drafting and Signing

The Operating Agreement becomes effective once adopted by the members. Alabama permits written and oral agreements, but a written version is strongly recommended for clarity. The document is not filed with the Secretary of State.

Recordkeeping

The agreement should be stored with the LLC’s permanent records at its principal office. Each member should keep a copy. Alabama requires annual Business Privilege Tax filings, making organized internal documentation important.

Amending the Agreement

Amendments should follow the procedure stated in the Operating Agreement. If the amendment affects information filed with the state, such as the registered agent or principal office, the LLC must update the Alabama Secretary of State.