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LLC Agreement Checklist


  • This checklist compiles questions to consider before preparing a comprehensive limited liability company (LLC) agreement.
  • The answers to these questions determine the form of LLC agreement (or operating agreement) to use, identify precedents that may be helpful, and identify areas requiring more discussion.
  • This article also includes an explanation of different ways the LLC agreement can restrict the authority of the partnership representative regarding federal income tax audits.
LLC Agreement Checklist
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This checklist compiles questions to consider before preparing a comprehensive limited liability company agreement. The answers to these questions determine the form of LLC agreement (or operating agreement) to use, identify precedents that may be helpful, and identify areas requiring more discussion.

Initial Considerations

  • Is this a single-member or multi-member limited liability company (LLC)?
  • Will the LLC use a long or short-form LLC agreement? LLC members may enter into one comprehensive long-form LLC agreement or a series of one or more stand-alone agreements covering different matters.
  • Are there majority and minority interests, or are the interests divided evenly among the members? Minority and majority parties often have different concerns than members in an LLC with evenly divided interests.
  • Is this a joint venture company? LLC agreements for joint venture companies often include provisions not usually found in LLC agreements for other companies (such as provisions regarding the ownership and use of intellectual property created by the LLC).
  • Who are the LLC’s investors? For example, private equity firms typically want more control over management than passive investors.
  • Are any of the members key employees? If so, there are often special considerations for those members, such as employment agreements and non-compete provisions.
  • Are tax advisors reviewing the LLC agreement? Tax advisors (such as tax counsel) should review the LLC agreement, especially the tax matters section, the capital accounts section, and the allocations and distributions provisions.

Parties and Background

  • Are all of the parties identified in the LLC agreement?
  • Should the LLC be a party to the agreement? The LLC is usually a party if it has obligations to the members under the agreement.
  • Is the LLC agreement effective when signed or on a different date? If the LLC is not yet formed, the agreement is usually effective on company formation.
  • Is there any important or relevant background information to include in the recitals? For example, the parties may want to state the reasons for forming the LLC.

Organizational Matters

  • What is the LLC’s name? Does it meet the statutory requirements of its state of formation?
  • Has each member provided the member’s contact information (mailing address, telephone and fax numbers, email address, and principal contact)?
  • When was the LLC formed? If the LLC has not yet been formed, when will it be?
  • What is the name and address of the LLC’s registered agent for service of process?
  • Where is the LLC’s principal place of business?
  • Will the LLC conduct business in other states besides its state of formation? If so, does the LLC need to file for foreign qualification in those other states?
  • Does either the state in which the LLC will be organized or any state in which the LLC will qualify to do business have any publication requirements? If so, ensure the LLC satisfies them.
  • What is the LLC’s term? The term can be perpetual (subject to early termination as may be specified in the agreement) or for a fixed period (see Dissolution and Winding Up, below).
  • What is the LLC’s business purpose? Will it be narrow in scope (for example, buying a piece of real estate) or broad (for example, to permit the LLC to conduct any business allowed by law)?
  • Will the LLC be a professional service LLC providing a professional service that requires the individuals providing the service or the members (or both) to be licensed by the state of formation? If so, do those individuals and the members have the proper licenses?
  • Does the LLC require a license to operate its business? Depending on its type of business and where it is located, the LLC may need to obtain local and state business licenses.

Member Considerations

  • How can new members be admitted? For example, does the admission of new members require the consent of the managers or a vote of the members?
  • If the LLC is manager-managed, will the LLC agreement provide that the managers can unilaterally update the agreement to reflect new members?
  • What are the limitation of liability and indemnification provisions? LLC agreements usually provide that:
    • members are not liable for more than their capital contribution; and
    • subject to certain exceptions, the LLC will indemnify members from and against claims and demands resulting from being a member of the LLC.
  • Can members enter into transactions with the LLC? For example, can the members make loans to the LLC?

LLC Interests

  • Will there be more than one class of LLC interests? If so, consider the following for each class:
    • voting rights (see Voting and Action, below);
    • allocation, distribution, and liquidation preferences (provisions of the LLC agreement referred to as waterfall provisions specify the priority of distribution of cash and other assets to the members) (see Allocations and Distributions, below);
    • management rights (see Management, below); and
    • additional capital contributions (see Capital Contributions, below).
  • Will the LLC interests need to be registered under any blue sky laws? Will the LLC need to file appropriate documents for an exemption from registration under the Securities Act of 1933 (Securities Act), such as Form D?
  • Will the LLC issue profits interests to members or employees?
  • Will any of the members be granted preemptive rights to avoid dilution?
  • Will the LLC interests be evidenced by certificates?

Voting and Action

  • Will the members have voting rights? If so, consider the following:
    • what matters can they vote on? Members are often given the right to vote on certain significant matters (such as a sale of all or substantially all of the LLC’s assets).
    • what vote is required to approve each matter (majority, supermajority, or unanimous)?
    • are there any actions that require a higher threshold vote than others? For example, the LLC agreement may specify that certain matters require only majority consent while other matters (such as dissolving the LLC or selling all of its assets) require supermajority or unanimous consent.
  • Will the LLC agreement provide for meetings and actions by the members? If so, consider including provisions relating to:
    • annual and special meetings;
    • notice of meetings;
    • setting a record date;
    • quorum requirements;
    • acting by written consent; and
    • acting by proxy.

Transfers of LLC Interests

  • What transfer restrictions will the LLC agreement impose? LLC agreements often contain detailed transfer restrictions. If the LLC is treated as a partnership for US federal income tax purposes, any transfer (or withdrawal) that would cause the LLC to be treated as a corporation for US federal income tax purposes should be prohibited by the LLC agreement notwithstanding any other provisions of the LLC agreement.
  • Will the LLC agreement impose restrictions on the members from encumbering their LLC interests (such as using them as collateral for a loan)?
  • Whose consent will be required to approve a transfer (for example, the managers or the members)?
  • Will the LLC agreement designate permitted transferees? LLC agreements typically allow transfers of LLC interests to a defined group of transferees without prior consent, such as:
    • family trusts;
    • affiliates;
    • immediate family members; and
    • other members.
  • What types of transfer and buy-sell provisions will the LLC agreement include? Common examples include:
    • tag-along and drag-along rights;
    • rights of first offer;
    • rights of first refusal;
    • put rights; and
    • call rights.
  • Will the LLC include buy-sell provisions in the LLC agreement or in a separate buy-sell agreement? What events trigger the buy-sell provisions?
  • What are the terms and procedures if a buy-sell provision is triggered? How are valuation and payment methods addressed?
  • What are the procedures for admitting additional members? New members (including transferees of existing LLC interests) usually have to meet certain requirements before becoming a member for purposes of the LLC agreement (such as agreeing to be bound by the agreement and certifying that the new member is an “accredited investor” under the Securities Act).
  • If a transferee is not admitted as a member under the agreement, what will that transferee be entitled to? A transferee not admitted as a member is typically only permitted to receive the economic benefit of the LLC interests.


  • Will a member be allowed to withdraw from the LLC? If a member can withdraw, what notice or process must the member follow to withdraw? What liability, if any, will there be for wrongful withdrawal?
  • Can a member be expelled? If the LLC agreement allows for the expulsion of a member, what process must be followed to expel the member? When will an expulsion become effective?
  • Are the provisions in the LLC agreement that address withdrawal and expulsion of a member consistent with any buy-sell provisions and transfer restrictions in the LLC agreement or stand-alone buy-sell agreement? For more information on buy-sell provisions and transfer restrictions, see Transfers of LLC Interests, above.


  • What is the management structure? Will the LLC be managed by its members, one or more managers, or by a separate board of managers?
  • Will the LLC have officers? If so, the LLC agreement should include relevant provisions, such as procedures for appointment and removal, powers, responsibilities, and authority.

Member-Managed LLC

  • If the LLC is member-managed and has more than one member, consider whether it will be managed by:
    • all of the members;
    • specified members; or
    • a class of members.
  • If the LLC is member-managed, what are the members’ powers?
  • What standards of conduct will the members be required to adhere to? If permitted by applicable law, will the members’ fiduciary duties be waived?
  • Will any member be compensated for services provided to the LLC?

Manager-Managed LLC

  • Who is the initial manager? The LLC agreement usually identifies the initial manager.
  • Will there be more than one manager? If so:
    • how will they settle any disputes between or among them?
    • should they be organized into a board of managers structure?
  • Must the managers also be members? This may be a matter of law, so review the LLC laws of the relevant jurisdiction before appointing any manager.
  • How can a manager be removed? Managers can often be removed with or without cause by the vote of a certain percentage of LLC interests.
  • How can manager vacancies be filled (for example, if a manager resigns or is removed)?
  • Should each manager have equal voting power, or should some managers have more votes than others?
  • What are the managers’ powers? Do certain managers have blocking rights over certain LLC actions? Will only certain managers have the power to bind the LLC?
  • Are there any limitations on the managers’ powers? What management authority or responsibility, if any, will be retained by the members? Common matters requiring member approval include:
    • a sale of all or substantially all of the LLC’s assets;
    • a merger of the LLC;
    • incurring debts over a certain amount of money; and
    • a dissolution of the LLC.
  • If a manager-managed LLC will have more than one manager, consider including provisions relating to:
    • regular and special meetings;
    • notice requirements;
    • quorum requirements; and
    • acting by written consent.
  • Will the managers be compensated for acting as the managers? The LLC agreement should specify any compensation to which managers will be entitled.
  • What standards of conduct will the managers be required to adhere to? If permitted by applicable law, will the managers’ fiduciary duties be waived?
  • Will the LLC agreement include specific indemnification procedures for the managers? Managers are typically indemnified to the maximum extent allowed by law.

Financial Considerations

Capital Contributions

  • What will be the form and amount of the members’ initial capital contributions?
  • When are the initial capital contributions due? Capital contributions can be due:
    • at or before formation;
    • according to a schedule; or
    • on the occurrence of certain events.
  • Will additional capital contributions (capital calls) be required? If so, consider:
    • who determines when to call an additional capital contribution (capital calls are usually subject to the managers’ discretion or the members’ approval);
    • how members are notified of capital calls;
    • how much each member will be responsible for contributing; and
    • how the LLC can raise any additional funds not provided by the members.
  • If one member does not make a required capital contribution, what are the liabilities and responsibilities of the members?
  • What are the penalties or consequences for a member who fails to make a required capital contribution?
  • Are members entitled to interest on their capital contributions? Usually, they are not.

Capital Accounts

  • Will the LLC agreement provide for the establishment and maintenance of capital accounts?
  • Will the LLC agreement state that members are not obligated to restore a negative capital account balance? Such an obligation would undermine the separation between an LLC and its members and effectively impose potentially unlimited liability on the members.
  • Will the capital account of a transferring member transfer to a transferee on the transfer of part or all of the transferring member’s LLC interest?
  • Will withdrawals of amounts from a member’s capital account be permissible or required?
  • Did tax counsel or other tax advisor review the section regarding capital accounts in the LLC agreement to ensure compliance with applicable tax law?

Allocations and Distributions

  • Do certain members or classes of LLC interests have a priority in the waterfall regarding distributions or allocations?
  • How will net profits and net losses be allocated? Net profits and net losses may be allocated simply according to each member’s percentage ownership of the company, or in more complicated economic deals, under either tiers of allocations that control distribution entitlements (sometimes referred to as “layer cake allocations”) or target capital account allocations where members’ distribution entitlements control the members’  income and loss allocations.
  • If the LLC is manager-managed, will distributions of company funds be at the discretion of the managers or made at established times? If the latter, consider how will those times be established, for example:
    • at specified dates or intervals; or
    • on the occurrence of specified events.
  • How will distributions be made? Similar to allocations of profits and losses, distributions are often made according to percentage ownership or a waterfall provision.
  • Besides cash, will the distribution of securities and other LLC property be permitted?
  • Is there a provision providing for tax distributions (to cover members’ tax obligations attributable to their membership in the LLC)?
  • Are there restrictions on distributions? An LLC typically cannot distribute funds if doing so would leave the LLC unable to pay its current liabilities and operating expenses.
  • Did tax counsel or other tax advisor review the section regarding allocations and distributions in the LLC agreement to ensure that the provisions concerning distributions and allocations will not have unintended consequences for the LLC or its members?

Taxes, Books, and Records


  • How will the LLC be treated for US federal income tax purposes? Domestic LLCs with two or more members are generally treated as partnerships (that is, as “pass-through” entities that are not themselves subject to tax) for US federal income tax purposes (unless they specifically elect to be treated as a corporation), avoiding the entity-level tax imposed on corporations. Typically:
    • a single-member LLC is treated as a sole proprietorship, branch, or division of the owner; and
    • a multi-member LLC is treated as a partnership.
  • Will the LLC agreement include provisions for preparing and filing the LLC’s tax returns?
  • What is the LLC’s fiscal year? LLCs usually operate on a calendar year.
  • Who will be appointed as the “partnership representative” and “designated individual” (if applicable) (IRC § 6223)? The LLC agreement generally specifies the designated person’s duties and any supplemental powers, such as:
    • making any tax elections on behalf of the LLC;
    • filing tax returns; and
    • representing the LLC in foreign, state, and local audits and judicial proceedings.
  • What powers do the members have over actions of the partnership representative (and designated individual, if applicable)? The partnership representative has sole authority to represent the LLC in US federal income tax audits under partnership tax audit rules, and the LLC agreement may restrict this authority by:
    • requiring the partnership representative to notify the members of the beginning of any tax audit, receipt of a tax assessment, or receipt of a final partnership adjustment;
    • preventing the partnership representative from entering into a settlement agreement or taking other actions (for example, extending the statute of limitations) without the consent of a specified percentage of the members; and
    • requiring the partnership representative to take certain actions to reduce an imputed underpayment (the tax assessed against the LLC) or, alternatively, to either opt out of the partnership tax audit rules if this option is available or to elect procedures to push out adjustments to audited-year members.
  • Is there a provision addressing tax withholding?
  • Does the LLC need an employer identification number (EIN)? If the LLC has more than one member, it must obtain its own EIN regardless of whether it has employees. A single-member LLC also must have an EIN if it elects to be taxed as a corporation rather than a sole proprietorship. An EIN is also required for:
    • opening a bank account for the LLC;
    • federal and state tax reporting purposes (for example, an LLC with a single owner and treated as a disregarded entity or sole proprietorship must obtain an EIN to report excise taxes); and
    • hiring employees (for example, an LLC with a single owner and treated as a disregarded entity or sole proprietorship must obtain an EIN to report and pay employment taxes).

Books and Records

  • Will the LLC prepare and distribute monthly, quarterly, or annual financial statements or reports? If so, do any or all of them have to be prepared in accordance with GAAP, International Financial Reporting Standards, or other accounting conventions?
  • What are the policies for preparing and maintaining the LLC’s books and records?
  • What provisions will the LLC agreement include for members and managers to inspect the LLC’s books and records? Members can usually inspect the books and records as a matter of law.

Dissolution and Winding Up

  • Will the LLC have a perpetual term, or will it exist for a set period?
  • What events will give rise to a dissolution of the LLC?
  • What member vote is required to terminate the LLC?
  • Who will take care of the winding up and liquidation process? This is usually handled by the managers or the managers’ appointee.
  • How will assets be valued and distributed in liquidation? After the LLC settles its debts and pays its creditors, any remaining LLC assets (or proceeds from their disposition) may be distributed to the members based on the members’ positive capital account balances, or based on the distribution waterfall (if the target capital account allocation method is used).
  • How will the LLC handle unknown or missing creditors?
  • Will the members have the right to revoke the dissolution of the LLC, change the duration of the LLC, or cancel or extend the time for an event of dissolution?

Restrictive Provisions

  • Is there a need for confidentiality provisions? For example, if the LLC has trade secrets to protect, it usually wants the members to agree to maintain them as confidential.
  • Is there a need for non-compete provisions? Members, managers, and other key employees are often restricted from competing with the LLC.
  • If the LLC agreement includes non-compete provisions, should they apply to all members and managers? Restricting competitive activities of members and managers who are also key employees of the LLC is usually more important than restricting minority investors with no involvement in the LLC’s operations.
  • Are there any other restrictive provisions or agreements to consider?


  • What state’s laws should govern the LLC agreement? It is common to pick the laws of the state in which the LLC is formed.
  • Will the LLC agreement include deadlock provisions? If so, the following are common ways to deal with deadlocks:
    • mediation or arbitration;
    • buy-sell provisions; and
    • a third-party referee outside of the legal process.
  • How will the LLC agreement provide for the resolution of disputes among the members or among the members and the LLC? Will the LLC agreement provide for a specific venue and jurisdiction for disputes?
  • How can the LLC agreement be amended or modified? Sometimes the managers may make administerial changes to the LLC agreement in their discretion, while all other changes typically require the approval of a certain percentage of LLC interests.
  • How can notices under the LLC agreement be given? For example, can notices be made by email?
  • Are any third parties entitled to any rights under the LLC agreement? If not, consider adding a “no third-party beneficiaries” provision to make it clear that third parties do not have any rights under the LLC agreement.

Schedules and Exhibits

  • Does the LLC agreement call for any schedules or exhibits?
  • If so, what information is necessary to complete the schedules or exhibits?

Authority and Conflicts

  • Is this a new LLC agreement, or is it an amendment and restatement of an existing agreement? If this is an amended and restated agreement, review the existing LLC agreement for approval and amendment provisions.
  • Is the LLC agreement consistent with applicable LLC law and the company’s formation document (such as the company’s certificate of formation)?
  • Are the member approvals consistent with applicable law? Check the LLC laws of the relevant state to see if there are certain matters that must be voted on by members (such as mergers).
  • Are there any other separate agreements (such as contribution and subscription agreements, non-compete agreements, purchase and sale agreements, and loan agreements) to coordinate with the LLC agreement? Review these agreements as necessary to ensure that the parties, definitions, and any other applicable terms among the agreements are consistent.

Reprinted with permission from Thomson Reuters Practical Law. © 2022 by Thomson Reuters. All rights reserved. Thomson Reuters is a Sponsor of the GPSolo Division, and this article appears pursuant to the Division’s agreement with them. This article is not an endorsement by the ABA or the Division of any Thomson Reuters product or service.