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Price: $49.95
Revised: September 2012 - 15 pages
Description:
Form 3.1 is designed for the situation in which a husband and wife operate a business or own investment real estate together. By forming an LLC and using this short and easy to understand operating agreement, a married couple can obtain the benefit of limited liability protection without affecting their income tax reporting. They can continue to report their income on a joint return’s schedule for reporting business or rental income and don’t need to file a partnership return.
This form is designed to be as simple as possible and omits many provisions included in operating agreements for LLCs with members who are unrelated or have differing economic interests. The operating agreement provides for management by the members and requires both to agree on management decisions. Things like making distributions are left to the members' discretion on the assumption that their unity of economic interests will make these decisions easy and noncontroversial.
Deadlock is possible if there is marital discord, and the form provides two remedies. First, a member has the right to withdraw at any time, which causes the LLC to dissolve. Second, a cross-offer provision gives each member the option to purchase the interest of the other unless the other member elects to purchase the offering member’s interest at the same price and on the same terms. Using the cross offer rather than resigning may avoid a distress sale of the LLC’s assets following its liquidation.
The form makes no attempt to restrict transfers of interests, relying instead on the fact that a successor member will acquire only an economic interest in the LLC and no management rights. In addition, a member opposed to a transfer can exercise a cross-offer option to terminate all interests of the successor in the LLC.
The dissociation of a member causes the LLC to dissolve, but if one member dies or becomes disabled or bankrupt, the LLC may be continued with the consent of the other member and the dissociated member’s successor in interest. As a practical matter, the other member is likely to be the successor in the event of death or disability and bankruptcy will generally affect both members, so deciding whether to continue or dissolve the LLC may not be difficult.
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