IRA LLC Operating Agreement

Limited Liability Companies are required to have an Operating Agreement – the rules by which the limited liability company is governed. Most LLC’s that are formed by incorporating companies will include a kit that contains a generic Operating Agreement.

This generic operating agreement will not meet the requirements for your self directed IRA.

The main reason to make an LLC operating agreement is as simple as it is important: It helps ensure that courts will respect your limited personal liability. This is particularly important in a single member LLC where, without the formality of an agreement, the LLC will look a lot like a sole proprietorship. Having a formal written operating agreement will lend credibility to your LLC’s separate existence. An operating agreement is also used to override default rules imposed by a state’s LLC Act. For example, many LLC Acts provide that each member will have equal voting power on company decisions. However, if one member contributes 75% of the capital to the company, the members may agree that member should have more voting power. This can be addressed in the operating agreement to override the default state rules.

You will need an operating agreement specifically customized to fit the needs of your LLC and meet the requirements of the IRS for a Self Directed IRA LLC.

A copy of the Operating Agreement that is prepared by a qualified entity will be required by the IRA Custodian of your Self Directed IRA and also by the bank where you will have your LLC’s checking account.

An operating agreement helps your LLC by guarding your limited liability status, heading off financial and management misunderstandings, and making sure your business is governed by your own rules — not default rules created by your state.

There’s a host of issues you must cover in your LLC operating agreement, some of which will depend on your business’s particular situation and needs. Most operating agreements include the following:

  • Members’ percentage interests in the LLC
  • Each members’ rights and responsibilities
  • Each members’ voting powers
  • How profits and losses will be allocated
  • How the LLC will be managed
  • Rules for holding meetings and taking votes, and
  • Buyout, or buy-sell, provisions, which establish a framework for what happens when a member wants to sell his or her interest, dies, or becomes disabled.

In short the Operating Agreement is the key component of your Self Directed IRA LLC and it must be prepared correctly.

WARNING

There are additional provisions that are necessary for a Self Directed IRA LLC Operating Agreement that are specific to a self directed IRA LLC and must be contained in the operating agreement.

 


 

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