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    3 Replies Latest reply on Jul 23, 2008 11:07 AM by Sparky04

    How do I change an Operating Agreement?

    Sparky04 Wayfarer
      I made a mistake and labeled my company as "member-managed" on the Operating Agreement when it is labeled a "manager-managed" company on the Articles of Organization. I am in Illinois and the Operating Agreement is not required to be filed with the state. In addition, my wife and I are the only members of this company. Our LLC is buying property and I need to fix the discrepancy. I rewrote the Operating Agreement to reflect the changes but the legal department at the bank says it has to be amended not completely redone. From my research, an operating agreement can be changed in two ways, 1. Amendment, 2. Rewriting the entire document. Why are they telling me I can't alter the entire document, when the changes affect the entire document?

      Any help would be great
      Thanks
      Mark
        • Re: How do I change an Operating Agreement?
          Lighthouse24 Ranger
          Perhaps I'm misunderstanding, but it sounds like your comapny IS member-managed. Did you and your wife hire/appoint outside parties to run the company? If not (i.e., if you're managing it yourselves), then it seems like it would be the Articles of Organization that need to be restated to reflect that. Perhaps that is what's causing the confusion.

          Hope that helps. Best wishes.
          • Re: How do I change an Operating Agreement?
            Bean Counter Adventurer
            Hey Sparky!
            Banks can be very sticky on what they are looking for in documents.

            The quick and easy is to write up an amendment to the operating agreement and submit it to the bank. This just sounds like a typo. However, banks have their procedures just like anyone else. Once you submit a document, some banks don't like it to be changed. Like an audir trail.

            It sounds like you are ok for the State of Illinois since the Articles of Organization were filed correctly as manger managed LLC.

            An LLC is a great way to hold real estate. Because there are two membes to the LLC, you will default as a partnership for tax purposes.

            Be careful who signs the note on the LLC. Whoever signs the note or makes the guarantee will have the presumption of self employment taxes in the partnership. Having a manger managed LLC will allow the "manager" to sign the guarantee. This leaves the other members the ability not to pay self employment taxes on the income provided that all the other requirements are met.

            The bank is being very sticky on this because they have to know who is responsible for the loan. They will not loan money to an LLC without a guarantee from either the manager or all the members. This is because an LLC is a limited liability company in which no member is personally liable for the debts of the entity.

            The bank will thus require that guarantee. Guarantee means self employment taxes in the IRS view.

            I am hoping this sheds some light on the banks point of view. Most people who create LLCs do not realize the implications or formalities of the entity itself.

            Thanks and have a great day.
              • Re: How do I change an Operating Agreement?
                Sparky04 Wayfarer
                I just got off the phone with the bank and they stated what and how they wanted it changed. We are closing this afternoon and informed them that using an attorney is not an option today. One of the issues is that the bank we are using is in MO and the company is in IL. MO requires that Operating Agreements be filed with the state and IL does not. Thanks for the info. Definitely helpful.

                Thanks