The Infamous Operating Agreement, Part 2

The Infamous Operating Agreement, Part 2

If you haven’t already, read Part 1 here.

This second post about our operating agreement covers how we assigned rights and duties of our “manager” (which we decided would be one of us) as well as rights and duties of all business partners. Per our agreement, none of us – including the manager – can make any big decisions or changes to the business without the agreement of the other members/partners in the business. We designed it that way on purpose.

Leave any questions you have in the comments section!

ARTICLE III: RIGHTS AND DUTIES OF MANAGER

3.1 Management. Except as specifically provided in this Agreement to the contrary, the business and affairs of the Company shall be conducted by the Manager(s) after due consultation and approval of the other Members. In the event of multiple Managers, each such Manager individually, without the joinder of the other, has all of the power and authority to act for and on behalf of the Company, and the Company shall be managed exclusively by any one of its designated Managers. The Manager shall direct, manage, and control the business of the Company to the best of its ability and shall have full and complete authority, power, and discretion to make any and all decisions and to do any and all things which the Manager shall deem to be reasonably required to accomplish the business and objectives of the Company, subject, however, to all limitations or other provisions of this Agreement. No Member other than a Manager shall have the authority to act for or bind the Company. Notwithstanding the foregoing, each Member retains the discretion and authority to engage in activities and decision-making related to and necessary for conducting the normal daily practices of orthodontics without the Manager’s approval.

3.2 Number Tenure and Qualifications. (Name of manager) shall initially be the sole Manager of the Company. He agrees to act after consultation and approval of the other Members. The number of Managers of the Company shall be fixed from time to time by the affirmative unanimous vote of the Members, but in no instance shall there be less than one (1) Manager. Each Manager shall hold office until the next Annual Meeting of Members or until his successor shall have been elected by the unanimous vote of the Members and qualified.

3.3 Certain Powers of Manager. Without limiting the generality of Article  3.1 and except as otherwise set forth in this Agreement, the Manager shall have power and authority, on behalf of the Company, to do the following, provided, however, that the Manager’s power and authority shall be limited to doing those items necessary to accomplish the specific purposes of the Company set forth in this Agreement, and the Manager shall have no power or authority to do anything not reasonably necessary to accomplish such purposes.

A. To acquire supplies and equipment from any person as the Manager may determine after consultation and approval of the other Members. The fact that a Member is directly or indirectly affiliated or connected with any such person shall not prohibit the Manager from dealing with that person; however, such affiliates shall be disclosed to all Members and those arrangements shall be reasonably competitive.

B. To purchase liability and other insurance to protect the Company’s property and business.

C. To invest any Company funds temporarily (by way of example but not limitation) in time deposits, short-term governmental obligations, commercial paper, or other investments.

D. Make or revoke any election permitted the Company by any taxing authority.

E. To employ accountants, legal counsel, managing agents, or other experts to perform services for the Company after consultation and approval by the other Members, and to compensate them from Company funds.

F. To act as “Tax Matters Partner” pursuant to Section 6221 of the Code.

G. To enter into any and all other agreements on behalf of the Company with any other person or Entity for any purpose in such forms as the Manager may approve, provided such agreements are necessary or appropriate to the conduct of the Company’s business and after consultation and approval by the other Members.

H. After consultation and approval by the other Members to execute on behalf of the Company all instruments and documents, including without limitation checks; drafts; notes and other negotiable instruments; mortgages or deeds of trust; security agreements; financing statements; documents providing for the acquisition, mortgage, or disposition of the Company’s property; assignments; bills of sale; leases; partnership agreements; and any other instruments or documents necessary, in the opinion of the Manager, to the business of the Company.

I. To do and perform all other acts as may be necessary or appropriate to the conduct of the Company’s business.

Unless authorized to do so by this Agreement or by a Manager, no Member, agent, or employee of the Company shall have any power or authority to bind the Company in any way, to pledge its credit, or to render it liable for any purpose.

3.4 Limitation on Authority. Notwithstanding any other provision of this Agreement, the Manager is expressly prohibited from:

A. Doing, approving, or consenting to any act in contravention of this Agreement.

B. Doing, approving, or consenting to any act which would make it impossible for the Company to carry on the ordinary business of the Company, including the sale of all or substantially all of the Company’s assets.

C. Confessing a judgment in excess of (amount) DOLLARS ($ amount) against the Company or delivering any general assignment for the benefit of creditors of the Company.

D. Causing any obligation of the Company to be cross-defaulted with any non-Company obligation.

E. Reinvesting of any Cash Available for Distribution.

3.5 Major Decisions. Notwithstanding anything to the contrary contained herein, the Manager shall not take any action or make any decision or expend any sum or undertake or suffer any obligation on behalf of the Company which comes within the scope of the Major Decisions enumerated below without first obtaining the unanimous approval of the Members. “Major Decisions” shall be defined as the following actions:

A. Approving any transaction between the Company and the Manager or any Affiliate thereof which is not specifically provided and/or allowed in this Agreement.

B. Instituting or consenting to the institution of any insolvency or bankruptcy proceeding on behalf of the Company or any subsidiary thereof.

C. Establishing or increasing the rate of compensation if any of the Manager.

D. Selling, leasing, hypothecating, encumbering, or approving or consenting to the same, of any assets of the Company for anything other than a Company purpose.

E. Obtaining any mortgage loan for the Company, recourse or non-recourse.

F. Borrowing money for the Company from banks, other lending institutions, the Members, or affiliates of the Members, and in connection therewith to hypothecate, encumber, and grant security interests in the assets of the Company to secure repayment of the borrowed sums. No debt or other obligation shall be contracted or liability incurred by or on behalf of the Company except by the Manager.

G. Subject to the applicable provisions of this Operating Agreement, suing on, defending, transferring, hypothecating, compromising or releasing any and all claims or liabilities in favor of or against the Company, submit any or all such claims or liabilities to arbitration, and confess a judgment against the Company in connection with any litigation in which the Company is involved.

3.6 Manager Has No Exclusive Duty to Company. The Manager shall not be required to manage the Company as his sole and exclusive function and he may have other business interests and may engage in other activities in addition to those relating to the Company. Neither the Company nor any Member shall have any right by virtue of this Agreement to share or participate in such other investments or activities of the Manager or to the income or proceeds derived therefrom.

3.7 Bank Accounts. The Manager or his delegee may from time to time open bank accounts in the name of the Company, and the Manager shall be the sole signatory required thereon unless the Manager determines otherwise. As stated in Article 12.9, below, certain payments by check require joint signatures or approval of all Members. As such, the Manager may require that the Company’s bank account have multiple signatories.

3.8 Company Books. The Manager shall maintain and preserve at the Company’s registered office, during the term of the Company and for five (5) years thereafter, all accounts, books, and other relevant Company documents, including without limitation a current list of the full name and last known business, residence, or mailing address of each Member and Manager (both past and present); a copy of the Articles of Organization and all amendments filed with the Arizona Corporation Commission; copies of this Agreement together with any supplements, modifications, or amendments hereto; any prior operating agreements no longer in effect; written agreements by a Member to make a Capital Contribution to the Company; copies of the Company’s federal, state, and local income tax returns and reports for the three (3) most recent years; copies of the Company’s financial statements for the three (3) most recent years; copies of minutes of every annual, special, and court-ordered meetings; and copies of any written consents obtained from Members for actions taken without a Meeting.

3.9 Indemnity of the Manager. The Manager shall be indemnified by the Company to the fullest extent permitted by Arizona law except for any act or omission which arises from the Manager’s gross negligence, willful misconduct, or fraud. Additionally, to the extent not inconsistent with applicable law, neither the Manager nor any employee, agent, attorney, Affiliate, partner, officer, director, successor, or assignee thereof shall be liable, responsible, or accountable in damages or otherwise to the Company or any Member for any action taken on behalf of the Company within the scope of authority conferred on the Manager by this Agreement; any inaction which does not constitute a violation by the Manager of any provision of this Agreement; or for any liability arising under federal or state securities laws; as long as such act, inaction, or liability did not arise from gross negligence, willful misconduct, or fraud.

3.10 Resignation. Any Manager of the Company may resign as the Manager of the Company at any time by giving written notice to the Members of the Company. The resignation of any Manager shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Such resignation shall not affect such Manager’s rights and liabilities as a Member.

3.11 Removal. The Manager may be removed at any time, with or without cause, by the unanimous vote of the Members. Note that the Manager is also a Member.

3.12 Vacancies. Any vacancy occurring for any reason in the office of the Manager of the Company may be filled by the unanimous vote of the Members. A Manager elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office and shall hold office until the expiration of such term and until his successor shall be elected and shall qualify or until his earlier death, resignation, or removal. A Manager chosen to fill a position resulting from an increase in the number of Managers shall hold office until the next Annual Meeting of Members and until his successor shall be elected and shall qualify, or until his earlier death, resignation, or removal.

ARTICLE IV: RIGHTS AND OBLIGATIONS OF MEMBERS

4.1 Rights and Obligations of Members. The Company shall be governed by the provisions of the Act, and to the extent not provided otherwise in this Agreement the rights and obligations of the Members shall be governed by the provisions of the Act.

4.2 Limitation of Liability. Each Member’s liability for the debts and obligations of the Company shall be limited as set forth in Act § 29-651 and other applicable law.

4.3 List of Members. Upon written request of any Member, the Manager shall provide a list showing the names and last known addresses of all Members in the Company.

4.4 Approval of Sale of All Assets. The Members shall have the right, by the unanimous vote of the Members, to approve the sale, exchange, or other disposition of any real property owned by the Company or the sale or other disposition of all or substantially all of the Company’s other assets, whether as a single transaction or part of a plan.

4.5 Company Documents. Upon reasonable request, each Member shall have the right during ordinary business hours to inspect and copy the Company documents described in Article 3.9 at the Member’s expense.

4.6 Priority and Return of Capital. No Member shall have priority over any other Member, either as to the return of Capital Contributions or as to Profits, Losses, or distributions, provided that this section shall not apply to loans (as distinguished from Capital Contributions) which a Member has made to the Company.

4.7 No Withdrawal of Capital Contributions. Except upon dissolution and liquidation of the Company, no Member shall have the right to withdraw its Capital Contribution except as agreed to by the unanimous vote of the Members.

4.8 No Interest on Capital Contributions. No Member shall be entitled to interest of any kind on account of a Capital Contribution, except that if a Member is entitled to repayment of its contribution, the Member shall be entitled to interest on any amount not repaid at the rate of seven percent (7%) per annum from the date when repayment should have been made.

4.9 No Exclusive Duty to the Company. The Members may have other business interests and may engage in other activities in addition to those related to the Company. Neither the Company nor the other Members shall have any right by virtue of this Agreement to share or participate in any such other businesses, investments, or activities of any other Member or the income or proceeds derived therefrom.

4.10 Loans to the Company. Upon the unanimous approval of the Members, a Member may, but is not required to, advance monies to the Company for use in the Company’s operations. The aggregate amount of such advances shall be an obligation of the Company to the Member and shall bear interest at the rate of seven percent (7%) per annum or such other rate as agreed upon by the Members. Such advances shall be deemed a loan by a Member to the Company and shall not be deemed a Capital Contribution, nor shall such loan increase the Member’s Ownership Interest. Any unpaid advances, together with accrued and unpaid interest, shall be payable solely out of the first Cash Available for Distribution and shall be repaid on a first-made, first-repaid basis.

4.11 Cooperation in Obtaining Insurance. (Member name of any member with debt on the business) intends to purchase policies of life insurance. Life insurance will name (other member names) as beneficiaries with amounts to cover (debtor’s name) indebtedness to (other member names). (Debtor name) will also allow (other member names) to purchase additional policies as they desire.

4.12 Representations and Warranties. Each Member, and in the case of an organization, each Person executing this Agreement on behalf of the organization, represents and warrants to the Company and each other Member that:

A. if that Member is an organization, it is duly organized, validly existing, and in good standing under the laws of its state of organization and that it has full organizational power to execute and agree to this Agreement and to perform its obligations hereunder;

B. the Member (i) is aware that investment in the Company is speculative in nature and subject to a high degree of risk, including, but not limited to, those risks that have been disclosed to the Member, (ii) can bear the economic risk of the purchase of its Ownership Interest, including the complete loss of its investment in the Company, and (iii) has sufficient knowledge and experience in business and financial matters as to be capable of evaluating the merits and risks of its purchase of an Ownership Interest;

C. the Member (i) knows or has had the opportunity to acquire all information concerning the business affairs, financial condition, plans and prospects of the Company which the Member deems relevant to make a fully informed decision respecting its investment therein; (ii) has been encouraged and has had the opportunity to rely upon the advice of the Member’s legal counsel and accountants and other advisers with respect to the purchase of its Ownership Interest; and (iii) has had the opportunity to ask such questions and receive such answers and information with respect to, among other things, the business affairs, financial condition, plans and prospects of the Company and the terms and conditions of the purchase of its Ownership Interest as the Member has requested so as to fully understand its investment in the Company;

D. the Member is acquiring its Ownership Interest for its own account, without a view to a public distribution or the resale, and the Member has no contract, undertaking, agreement, or arrangement to transfer, sell, or otherwise dispose of its Ownership Interest, or any interest therein, to any other Person;

E. the Member owns its Ownership Interest free and clear of any contract, option, lien or encumbrance, other than by virtue of this Agreement, and presently has the right and will have the right in the future to transfer its Ownership Interest pursuant to this Agreement.

ARTICLE V: MEETINGS OF MEMBERS

5.1 Annual Meeting. An Annual Meeting of the Members shall be held during the month of (month) or such other time at the exact time and location as determined by the Manager, commencing with the year (first year of partnership), for the purpose of the transaction of such business as may come before the Meeting.

5.2 Special Meetings. Special Meetings of the Members, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Manager.

5.3 Place of Meetings. The Members may designate any place as the place of Meeting for any Meeting of the Members with the Members being entitled to attend any Meetings by telephone. If no designation is made, the place of Meeting shall be held at the Company’s principal place of business.

5.4 Notice of Meetings. Except as provided in Article 5.5, written notice stating the place, date, and hour of the Meeting and the purpose or purposes for which the Meeting is called shall be delivered not less than three (3) nor more than fifty (50) days before the date of the Meeting, either personally or by mail, by or at the direction of the Manager or person calling the Meeting, to each Member entitled to vote at such Meeting. If mailed, such notice shall be deemed to be delivered two (2) calendar days after being deposited in the United States mail, addressed to the Member at his or her address as it appears on the books of the Company, with postage thereon prepaid. If transmitted by way of facsimile, such notice shall be deemed to be delivered on the date of such facsimile transmission to the fax number, if any, for the respective Member which has been supplied by such Member to the Manager and identified as such Member’s facsimile number.

5.5 Meeting of All Members. If all of the Members shall meet at any time and place, and consent to the holding of a Meeting at such time and place, such Meeting shall be valid without call or notice, and at such Meeting lawful action may be taken.

5.6 Record Date. For the purpose of determining Members entitled to notice of or to vote at any Meeting of Members or any adjournment thereof, or Members entitled to receive payment of any distribution, or in order to make a determination of Members for any other purpose, the date on which notice of the meeting is mailed or the date on which the resolution declaring such distribution is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any Meeting of Members has been made as provided in this section, such determination shall apply to any adjournment thereof.

5.7 Quorum. Members holding one hundred percent (100%) of the Ownership Interest in the Company, represented in person or by proxy, shall constitute a quorum at any Meeting of Members. In the absence of a quorum at any such Meeting, a majority of the Interests so represented may adjourn the Meeting from time to time for a period not to exceed sixty (60) days without further notice. However, if the adjournment is for more than sixty (60) days or if after the adjournment a new record date is fixed for the adjourned Meeting, a notice of the adjourned Meeting shall be given to each Member of record entitled to vote at a Meeting.

5.8 Manner of Acting. If a quorum is present, the unanimous vote of the Ownership Interests represented by the Members present in person, by telephone, or by proxy shall be the act of the Members unless the vote of a lesser proportion or number is otherwise required by the Act, the Articles of Organization, or this Agreement.

5.9 Proxies. At all Meetings of Members, a Member may vote in person, by telephone, by mail, or by proxy executed in writing by the Member or by a duly authorized attorney-in-fact. Such mail vote or proxy shall be filed with the Manager of the Company before or at the time of the Meeting. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy.

5.10 Action by Members Without a Meeting. Action required or permitted to be taken at a Meeting of Members may be taken without a Meeting if the action is evidenced by one or more written Consents describing the action taken, signed by that percentage or number of the Members, Managers, or Ownership Interests, as the case may be, required by the Act, the Articles, or this Agreement to take or approve the action, and delivered to the Manager of the Company for inclusion in the minutes or for filing with the Company records. Action taken under this section is effective when the Consent is signed by that percentage or number of the Members, Managers, or Ownership Interests, as the case may be, required by the Act, the Articles, or this Agreement to take or approve the action, unless the Consent specifies a different effective date. The record date for determining Members entitled to take action without a Meeting shall be the date the first Member signs a written Consent.

5.11 Waiver of Notice. When any notice is required to be given to any Member, a waiver thereof in writing signed by the person entitled to such notice, whether before, at, or after the time stated therein, shall be equivalent to the giving of such notice.

Not tired of this topic yet? Part 3 is right here. That oughta do it. 

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