Michigan Single-Member LLC Operating Agreement

Introduction

Key Things to Know

1. 1

   Michigan does not require an LLC to have an operating agreement, but the Michigan LLC Act defines 'operating agreement' as a written agreement (MCL 450.4102), so an oral or implied understanding does not legally qualify as one the way it can in some other states.

2. 2

   Without an operating agreement, Michigan law allocates profits, losses, and distributions in equal shares to all members, not based on the size of each member's capital contribution (MCL 450.4303).

3. 3

   A charging order is the exclusive statutory remedy against a member's LLC interest in Michigan, and the statute itself bars a creditor from foreclosing on that interest (MCL 450.4507).

4. 4

   Michigan LLCs owe no annual franchise tax or privilege tax. The recurring state obligation is a $25 Annual Statement filed with LARA, due February 15 each year starting the year after formation.

5. 5

   An operating agreement can modify Michigan's default duty of loyalty, and can eliminate a manager's monetary liability for breach of duty almost entirely, except for improper financial benefit, unlawful distributions, a knowing violation of law, or acts before the provision took effect (MCL 450.4404, 450.4407).

6. 6

   The operating agreement itself is not filed with the state. You form the LLC by filing Articles of Organization (Form CSCL/CD-700, $50 fee) with the Michigan Department of Licensing and Regulatory Affairs (LARA).

7. 7

   Michigan does not authorize Series LLCs. If you need to separate assets or liabilities across different lines of business, you need separate Michigan LLCs, not a single series structure.

Michigan Requirements for LLC Operating Agreement

• Operating Agreement Authority (MCL 450.4102(2))

  Michigan law recognizes an operating agreement's authority to govern the LLC's internal affairs and the relations among members, managers, and the company, except where a statute specifically restricts that authority. Unlike some states, Michigan's own definition of "operating agreement" (MCL 450.4102) requires it to be written; an oral or implied understanding does not have this legal effect under Michigan law.

• Fiduciary Duties (MCL 450.4404)

  Michigan law (MCL 450.4404) requires a member or manager to act in good faith, with the care an ordinarily prudent person would exercise, and to account for any profit or benefit personally derived from a company transaction, unless the operating agreement provides otherwise. Separately, MCL 450.4407 lets the operating agreement eliminate a manager's monetary liability for breaching these duties, except for receipt of an improper financial benefit, liability for unlawful distributions, a knowing violation of law, or acts before the provision took effect.

• Indemnification Provisions (MCL 450.4216)

  Under MCL 450.4216, the Company may indemnify, hold harmless, and defend a member, manager, or other person against losses, expenses, claims, and demands arising from their role with the Company, and may purchase insurance for that purpose. Indemnification is not available for receipt of an improper financial benefit, liability for unlawful distributions, or a knowing violation of law (cross-referencing MCL 450.4407(a)-(c)).

• Voting Rights and Requirements (MCL 450.4502)

  Absent a contrary operating agreement, each member of a Michigan LLC has one vote, and a majority in interest of the members entitled to vote is required to approve most matters (MCL 450.4502). The operating agreement can allocate voting rights differently, including giving some members limited or no voting rights.

• Membership Interest Transfer Restrictions (MCL 450.4506)

  Absent a contrary operating agreement, an assignee of a membership interest in a Michigan LLC with more than one member may become a member only by unanimous vote of the members entitled to vote. In a single-member LLC, an assignee may become a member under the terms the member and assignee agree to (MCL 450.4506).

• Withdrawal and Dissociation of Members (MCL 450.4509)

  Under MCL 450.4509, a member of a Michigan LLC may withdraw only as the operating agreement provides -- Michigan gives members no independent statutory right to withdraw. The operating agreement should state whether and how a member may withdraw and what, if anything, a withdrawing member is entitled to receive.

• Distribution of Profits and Losses (MCL 450.4303-4304)

  The operating agreement must specify how profits, losses, and distributions will be allocated among members, which can modify Michigan's default equal allocation rule.

• Records and Information Rights (MCL 450.4503)

  Under MCL 450.4503, a member may request the LLC's most recent annual financial statement and tax returns by written request, and may inspect and copy the LLC's required records during ordinary business hours at the member's own expense. The operating agreement can expand these rights but cannot eliminate them.

• Amendment Procedures (MCL 450.4603)

  Michigan's default rule for amending the Articles of Organization requires a unanimous vote of the members entitled to vote, unless the operating agreement authorizes amendment by a lesser vote (MCL 450.4603). The operating agreement should set its own amendment procedure for itself rather than rely on this Articles-of-Organization default.

• Charging Order Protection (MCL 450.4507)

  MCL 450.4507 makes a charging order the exclusive remedy by which a judgment creditor of a member may satisfy a judgment out of the member's LLC interest, and the statute itself bars the creditor from foreclosing on that lien or the underlying membership interest.

• Series LLC Provisions (Not Authorized in Michigan)

  Michigan does not authorize the formation of series LLCs. The Michigan Limited Liability Company Act contains no provision creating a "series" or "protected series" structure. A business that wants to segregate assets and liabilities across different lines of business needs separate Michigan LLCs, not a single series structure.