Operating Agreement Template - Attorney Aaron Hall

This is part four of a series on single owner LLC formation.

The Operating Agreement
of
[COMPANY NAME]

A Minnesota Limited Liability Company

Article One Company Formation……………………………………………………….. 1-1

Section 1.01 The Limited Liability Company………………………………………… 1-1

Section 1.02 The Company’s Name…………………………………………………… 1-1

Section 1.03 Company to Be Taxed as a Sole Proprietorship…………………………… 1-1

Section 1.04 Company’s Purpose and Scope……………………………………………. 1-1

Section 1.05 Purpose of Company Restrictions…………………………………………. 1-1

Section 1.06 The Company’s Principal Office and Location of Records……….. 1-2

Section 1.07 Registered Agent and Registered Office………………………………… 1-2

Section 1.08 The Company’s Term………………………………………………………….. 1-2

Section 1.09 Venue………………………………………………………………………………… 1-2

Article Two Tax Matters……………………………………………………….2-1

Article Three Membership Interests………………………………………. 3-1

Section 3.01 Percentage Membership Interest Represented by Shares……….. 3-1

Section 3.02 Valuing Membership Interests in the Company…………………….. 3-1

Article Four Capital Contributions………………………………………… 4-1

Section 4.01 Initial Capital Contributions………………………………………………… 4-1

Section 4.02 Mandatory Additional Capital Contributions Prohibited………… 4-1

Article Five Allocations and Distributions……………………………… 5-1

Section 5.01 Allocating Profit and Loss……………………………………………………. 5-1

Section 5.02 Distributions to Members……………………………………………………. 5-1

Article Six Company Management………………………………………. 6-1

Section 6.01 Management by Members…………………………………………………… 6-1

Section 6.02 Day-to-Day Management……………………………………………………. 6-1

Section 6.03 Appointing Officers……………………………………………………………. 6-1

Section 6.04 Signing Documents…………………………………………………………….. 6-1

Section 6.05 Managing Member as Agent………………………………………………… 6-1

Section 6.06 Non-Liability of Members for Acts, Omissions, or Forbearances in Their Managerial Capacity…………………………………. 6-1

Section 6.07 Limitations on Rights and Powers……………………………………….. 6-2

Section 6.08 Powers……………………………………………………………………………… 6-2

Section 6.09 Authorization to Sign Certain Instruments…………………………… 6-2

Section 6.10 Affidavit of Managing Member’s Authority…………………………… 6-3

Article Seven The Members……………………………………………………. 7-1

Section 7.01 Members’ Names and Addresses………………………………………….. 7-1

Section 7.02 Limited Liability of Members………………………………………………. 7-1

Section 7.03 Restrictions on Assignees’ Withdrawal Rights……………………….. 7-1

Section 7.04 No Right to Cause Dissolution……………………………………………… 7-1

Section 7.05 Partition Waiver…………………………………………………………………. 7-2

Section 7.06 Member Expulsion…………………………………………………………….. 7-2

Section 7.07 Voting……………………………………………………………………………….. 7-2

Section 7.08 Access to Information…………………………………………………………. 7-2

Article Eight Books, Records, and Bank Accounts…………………….. 8-1

Section 8.01 Books and Records……………………………………………………………… 8-1

Section 8.02 Accounting and Taxable Year………………………………………………. 8-1

Section 8.03 Reports……………………………………………………………………………… 8-1

Section 8.04 Bank Accounts and Company Funds……………………………………. 8-1

Article Nine Admitting Additional Members…………………………… 9-1

Section 9.01 Admission by Unanimous Consent of Members; Prerequisites………………………………………………………………………………… 9-1

Section 9.02 Capital Contributions and Fair Market Value………………………… 9-1

Section 9.03 Admissions Must Not Violate This Article…………………………….. 9-1

Article Ten Transfer of Membership Interests by a Member…… 10-1

Section 10.01 Additional Transfer Restrictions………………………………………… 10-1

Section 10.02 Transferee Treated as an Assignee until Admitted as a Substitute Member………………………………………………………………. 10-1

Section 10.03 Conditions Required to Become a Substitute Member…………. 10-1

Section 10.04 Assignee’s Rights and Limitations……………………………………… 10-1

Section 10.05 Member Disability…………………………………………………………… 10-2

Section 10.06 Death of a Member………………………………………………………….. 10-2

Section 10.07 Voting Rights of Transferred Interests………………………………. 10-2

Section 10.08 Non-Recognition of an Unauthorized Transfer or Assignment; Accumulation of Amounts to Be Distributed…………………………………………………………………………………………… 10-2

Section 10.09 Creditor Rights; Charging Order Sole Exclusive Remedy…….. 10-3

Section 10.10 Assignee or Charging Order Holder Assumes Tax Liability….. 10-3

Article Eleven Dissolution and Termination……………………………. 11-1

Section 11.01 Dissolving the Company……………………………………………………. 11-1

Section 11.02 Liquidating the Company Property…………………………………….. 11-1

Section 11.03 Company Property Sole Source…………………………………………. 11-2

Section 11.04 Company Asset Sales during Term of the Company…………….. 11-2

Article Twelve General Matters…………………………………………….. 12-1

Section 12.01 Successors and Assigns…………………………………………………….. 12-1

Section 12.02 Definitions……………………………………………………………………… 12-1

Section 12.03 Changing the Company’s Situs…………………………………………. 12-5

Section 12.04 General Matters………………………………………………………………. 12-5

Securities Law Disclosure

The Membership Interests or percentages of ownership of [COMPANY NAME] (Company) have not been and will not be registered under the Securities Act of 1933, as amended (Securities Act); under any other federal securities laws; or under the securities laws of any state. The Membership Interests or percentages of ownership are offered and sold without registration based on exemptions from the registration requirement of the Securities Act and laws and regulations enacted by the Securities and Exchange Commission.

The Company will not be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and will not file reports, proxy statements, or other information with the Securities and Exchange Commission or with any state securities commission.

The Limited Liability Company Membership Interests of the Company may not be offered for sale, sold, pledged, or otherwise transferred unless registered or qualified under applicable securities laws, or unless exempted from registration or qualification. Counsel for the owner of the Interest must appropriately register or qualify that Interest or establish any applicable exemption from registration or qualification; this opinion of counsel must be reasonably satisfactory to the Company.

No Member may register any Interest in the Company under any federal or state securities law without the express written consent of all Members.

The Members understand that some of the restrictions inherent in this form of business, and specifically set forth in this Agreement, may have an adverse impact on the fair market value of the Membership Interests if a Member attempts to sell or borrow against the Membership Interest in the Company.

[COMPANY NAME],

a Minnesota Limited Liability Company

[COMPANY NAME],

a Minnesota Limited Liability Company

Article One

Company Formation

Section 1.01 The Limited Liability Company

This Agreement, dated [DATE], forms and establishes a limited liability company under the laws of the State of Minnesota, and specifically under the Minnesota Revised Uniform Limited Liability Company Act. The Company becomes effective upon filing Articles of Organization as required by the State of Minnesota.

Section 1.02 The Company’s Name

The Company’s name is [COMPANY NAME]. The Members may change the name of the Company or operate the Company under different names.

Section 1.03 Company to Be Taxed as a Sole Proprietorship

The Member intends to establish an entity that is subject to taxation as a sole proprietorship.

Section 1.04 Company’s Purpose and Scope

The Company is organized to conduct any lawful purpose permitted under the Act.

In order to accomplish these purposes, the Company may:

own, acquire, manage, develop, operate, buy, sell, exchange, finance, refinance, and otherwise deal with real, personal, tangible, and intangible property, and any type of business, as the Members determine from time to time to be in the best interests of the Company; and

conduct any lawful business activity permitted under the laws of Minnesota and in any other jurisdiction in which the Company may have a business or investment interest in order to accomplish these objectives.

The Company may engage in any other activities that are related or incidental to these purposes, as the Members may determine with sole and absolute discretion.

Section 1.05 Purpose of Company Restrictions

Capital is material to the business and investment objectives of the Company and its federal tax status. An unauthorized transfer of a Member’s Interest could create a substantial hardship to the Company, jeopardize its capital base, and adversely affect its tax structure. As a result, certain restrictions expressed in this Agreement attach to and affect the ownership and transfer of Membership Interests. These restrictions are not intended to penalize, but are intended to protect and preserve the existing trust-based relationships, the Company’s capital, and the Company’s financial ability to continue to operate.

Section 1.06 The Company’s Principal Office and Location of Records

The street address of the principal office in the United States where the Company maintains its records is:

[ADDRESS]

or where the Members otherwise determine. The records maintained by the Company must include all records that the law requires the Company to maintain. The Company must maintain a records office in any jurisdiction that requires a records office and the Company must maintain all records required by applicable law at each records office.

Section 1.07 Registered Agent and Registered Office

The Company’s initial registered agent is [NAME], and the Company’s initial registered office is located at:

[ADDRESS]

Section 1.08 The Company’s Term

The Company’s duration is perpetual. The Company begins on the date the Articles of Organization are filed with the Secretary of State of Minnesota and continues until terminated or dissolved by this Agreement.

Section 1.09 Venue

Venue for any dispute arising under this Operating Agreement or any disputes among any Members or the Company will be in the county of the Company’s Registered Office.

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Article Two

Tax Matters

If the Company has only one Member, the Company will be classified as a disregarded entity for income tax purposes unless the Member elects to classify the Company otherwise and files the requisite statements with the IRS to reflect a change in tax classification.

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Article Three

Membership Interests

Section 3.01 Percentage Membership Interest Represented by Shares

Each Member’s Initial Membership Interest is the percentage interest set forth in the attached Exhibit A.

The Company shall maintain a correct record of all Members and their Membership Interests, together with amended and revised schedules of ownership caused by changes in the Members and changes in Membership Interests.

Section 3.02 Valuing Membership Interests in the Company

For all purposes, the value of the Company as an entity and of Membership Interests will be their respective fair market values.

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Article Four

Capital Contributions

Section 4.01 Initial Capital Contributions

As their Initial Capital Contributions to the Company, the Members shall contribute all of their right, title, and interest in and to the property described in Exhibit A. The Members agree that the property described in Exhibit A has the fair market value (net of liabilities assumed or taken subject to or by the Company) listed opposite the scheduled property.

Each Member’s Interest will be credited with an initial contribution equal to the fair market value as specified in Exhibit A.

Section 4.02 Mandatory Additional Capital Contributions Prohibited

The Company has no authority to require Additional Capital Contributions.

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Article Five

Allocations and Distributions

Section 5.01 Allocating Profit and Loss

The Company shall allocate all net profits and losses for each calendar year of the Company to each Member pro rata in accordance with the Member’s respective Membership Interest during the period the profits and losses accrue. For purposes of this Section, profits and losses include every item of income, deduction, depreciation, gain, loss, and credit for the calendar year.

Section 5.02 Distributions to Members

The Company’s primary intent is to retain Company funds in amounts determined in the Members’ sole and absolute discretion to meet the reasonable needs of the business or investments of the Company and other needs as provided in this Agreement.

When making any distributions of funds or other Company assets, the Company shall satisfy those distributions as follows.

(a) Cash Distributions

The Company may make distributions of Company cash to the Members on a pro rata or non pro rata basis as the Members, in their discretion, determine.

(b) In-Kind Distributions

The Members, in their sole and absolute discretion, may make in-kind distributions of Company property to the Members.

(c) No Interest

If a Member does not withdraw all or any portion of the Member’s share of any cash distribution made under Subsection (a), the Member may not receive any interest on the unwithdrawn amount nor on any additional Membership Interest unless all Members agree.

Article Six

Company Management

Section 6.01 Management by Members

The Members will manage the Company. The Members may manage the Company by majority, or may appoint one or more Managing Member from their number to represent the Members in managing the Company. For purposes of this Agreement, the Members acting by majority to manage the Company or the Managing Member will be referred to collectively as the Managing Member.

Section 6.02 Day-to-Day Management

The Managing Member may take all actions necessary, useful, or appropriate for the ordinary management and conduct of the Company’s business. Subject to the restrictions in Section 6.08, the Managing Member may exercise all powers of the Company and do anything that is not reserved by the Members as specified in the Articles of Organization, in this Agreement, or in the Act.

Section 6.03 Appointing Officers

If authorized by a majority of the Members, the Managing Member may appoint officers and define their function and authority. An Officer may, but need not, be a Member or Managing Member. Any appointment and assignment of function or authority must be in writing and kept with the Company records.

Section 6.04 Signing Documents

The Managing Member may sign any instruments, contracts, agreements, or other documents for the acquisition, encumbrance, or disposition of the Company’s property.

Section 6.05 Managing Member as Agent

Unless specifically prohibited by the Articles of Organization, the Managing Member serves as an agent of the Company to conduct business on behalf of the Company. As agent, the Managing Member may bind the Company unless the Managing Member’s action violates the terms of the Articles of Organization, this Agreement, or the Act, or unless third parties dealing with the Managing Member reasonably believe that the Managing Member does not have authority to act.

Section 6.06 Non-Liability of Members for Acts, Omissions, or Forbearances in Their Managerial Capacity

To the extent permitted by Minnesota law, all Members are released from liability for damages and other monetary relief because of any act, omission, or forbearance in managing the Company. No amendment or repeal of this provision affects any liability or alleged liability of any Member for acts, omissions, or forbearances that occurred before the amendment or repeal.

Section 6.07 Limitations on Rights and Powers

Unless authorized by the unanimous written agreement of the Members, a Member, Managing Member, or any other Officer of the Company may not:

permit the Company’s funds to be commingled with the funds of any other person;

act in any way that contradicts this Agreement;

act in any way that would make it impossible to carry on the business of the Company;

confess a judgment against the Company;

admit any person as a Member, except as otherwise provided in this Agreement.

Section 6.08 Powers

In pursuing its lawful purposes, the Company may do all things that limited liability companies are permitted to do under the Act.

Section 6.09 Authorization to Sign Certain Instruments

Regarding all obligations, powers, and responsibilities under this Agreement, the Managing Member may sign and deliver any notes and other evidence of indebtedness, contracts, agreements, assignments, deeds, leases, loan agreements, mortgages, and other security instruments and agreements in any form on behalf of the Company as the Managing Member determines to be proper.

Section 6.10 Affidavit of Managing Member’s Authority

Any third party dealing with the Company may rely on a notarized writing signed by the Managing Member stating the Managing Member’s authority to act for the Company. The Managing Member may, but shall not be required to, use the following as an example of a valid writing:

Sample Written Statement of Authority
of
[COMPANY NAME]

I am the Managing Member authorized to act on behalf of [COMPANY NAME], a Minnesota Limited Liability Company. I certify that I have the authority to act for and bind [COMPANY NAME] in business transactions for which this affidavit is given as affirmation of my authority.

[NAME], Managing Member

Sworn and subscribed before me the undersigned authority, by [NAME] on _________, 20_______.

Notary Public

This example may be modified as appropriate by the Managing Member.

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Article Seven

The Members

Section 7.01 Members’ Names and Addresses

The Company shall maintain an updated list of all past and present Members of the Company, and their last known mailing addresses. The list must be kept as part of the Company records.

Section 7.02 Limited Liability of Members

Except under Article Four, no Member will be required to contribute capital to the Company for the payment of any losses or for any other purposes, and no Member will be responsible or obligated to any third party for any debts or liabilities of the Company in excess of the amount of:

that Member’s unpaid required contributions to the Company’s capital;

unrecovered contributions to the Company’s capital; and

that Member’s share of any undistributed Company profits.

Section 7.03 Restrictions on Assignees’ Withdrawal Rights

No Assignee has the right to receive a return of any contributions (whether the contributions were made by the Assignee or by an Assignor) until the Company is terminated and its affairs wound up according to the Act and this Agreement. Any Assignee who does any of the following will be considered to have breached this Agreement:

interfere in the management of the Company affairs;

engage in conduct that results in the Company losing its tax status as a Company;

engage in conduct that discredits the Company;

breach any confidentiality provisions of this Agreement;

bring any legal action against the Company to force the dissolution of the Company, to force any distribution of Company assets, or to appoint a receiver; or

fail to discharge a legal duty to the Company.

Any Assignee who breaches this Agreement is liable to the Company for damages caused by the breach. The Company may offset damages against any distributions or return of capital to the Assignee who has breached this Agreement.

Section 7.04 No Right to Cause Dissolution

No Member may cause the dissolution and winding up of the Company by court decree or otherwise.

Section 7.05 Partition Waiver

Each Member, individually and on behalf of the Member’s successors and assigns, expressly waives any right to have any Company property partitioned.

Section 7.06 Member Expulsion

The Company may only expel a Member for violating this Agreement or for failing to make the Capital Contributions as required in Article Four. A Member may only be expelled on the unanimous consent of all Members, excluding the Member to be expelled.

An expelled Member loses all rights as a Member of the Company, and the expelled Member’s Interests are converted to that of an Assignee.

Section 7.07 Voting

Members may vote by written consent, with or without a formal meeting. Assignees may not vote.

Section 7.08 Access to Information

Subject to the provisions of this Section, each Member is entitled to all information regarding the Company under the circumstances and subject to the conditions stated in this Agreement and the Act. Assignees have no right to information, financial or otherwise, regarding the Company.

Article Eight

Books, Records, and Bank Accounts

Section 8.01 Books and Records

The Company shall keep books of account regarding the operation of the Company at the principal office of the Company, or at any other place the Members determine. All Members and their duly authorized representatives will have access to the books at all reasonable times. The Company shall keep the following records:

a current list of the full name and last known address of each Member;

a copy of the Articles of Organization (together with any amendments) and copies of any powers of attorney under which any certificate has been signed;

copies of the Company’s federal, state, and local income tax returns and any reports for the three most recent years;

copies of this Agreement (together with any amendments);

copies of financial statements, if prepared and maintained, of the Company for the three most recent years; and

any other documents required by law.

Section 8.02 Accounting and Taxable Year

The Company shall keep books of account consistent with any method authorized or required by the Internal Revenue Code and as determined by the Members. The Company shall close and balance the books at the end of each Company year. The Company’s Taxable Year is the period authorized or required by the Internal Revenue Code, and as determined by the Members.

Section 8.03 Reports

Within a reasonable time after the end of each Taxable Year, the Company shall provide all Members with the information necessary to prepare and file their respective tax returns. The Company shall prepare all financial statements at the Company’s expense.

Section 8.04 Bank Accounts and Company Funds

The Company shall deposit all cash receipts in the Company’s depository accounts. All accounts used by or on behalf of the Company are property of the Company, and will be received, held, and disbursed by the Manager for the purposes specified in this Agreement. The Members must not commingle Company funds with any other funds.

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Article Nine

Admitting Additional Members

Section 9.01 Admission by Unanimous Consent of Members; Prerequisites

Additional Members may only be added after the unanimous consent of the Members. Before being admitted as a Member, a prospective Member must first:

provide evidence satisfactory to the Company that admission of the prospective Member will not violate any applicable securities law, cause a termination of the Company under applicable provisions of the Code, or alter the status of any tax election made by the Company;

pay all reasonable expenses connected with admission as a Member, including fees incurred in obtaining opinions or valuations; and

agree to be bound by all of the terms of this Agreement by signing the Agreement.

Section 9.02 Capital Contributions and Fair Market Value

Other than contributions of cash or publicly traded securities, the fair market value of any property to be contributed by an additional Member as the initial Capital Contribution will be determined as agreed upon by the additional Member and the holders of a majority of the Membership Interests before the contribution is made. In the alternative, the Managing Member may appoint a disinterested appraiser to determine the value of the property to be contributed.

The Members may adopt and revise rules, conventions, and procedures as the Members determine to be appropriate regarding the admission of Members to reflect the Membership Interest at the end of the year in accordance with the intentions of the Members.

Section 9.03 Admissions Must Not Violate This Article

Any attempt to admit an additional Member that violates this Article will be null and void.

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Article Ten

Transfer of Membership Interests by a Member

Section 10.01 Additional Transfer Restrictions

If any proposed transfer of Membership Interests or addition of a Substitute Member will terminate the Company under either Internal Revenue Code Section 708(b) or the Act, then the transfer is prohibited unless the Members specifically approve the transfer. If not approved by the Members, the attempted transfer will be disregarded and void ab initio.

But the Members may not approve any transfer or addition of a Substitute Member that violates any applicable federal or state securities law.

Section 10.02 Transferee Treated as an Assignee until Admitted as a Substitute Member

The transferee of a Membership Interest will hold the interest only as an Assignee until the transferee satisfies all the requirements of Section 10.03 to become a Substitute Member. As an Assignee, the transferee will have only those rights in Section 10.04.

Section 10.03 Conditions Required to Become a Substitute Member

An Assignee will not become a Substitute Member and will not have any rights as a Member until all of the conditions, consents, and procedures in this Section have been fully satisfied.

(a) Members’ Consent

All Members must consent in writing to the admission of the Assignee as a Substitute Member.

(b) Executing All Other Agreements

The assigning Member and the Assignee shall sign, acknowledge, and deliver instruments of transfer and assignments to the Company, in the form and substance satisfactory to the Company. These instruments include the written acceptance and adoption by the Assignee of this Agreement.

(c) Reasonable Transfer Fee

An Assignee shall pay a reasonable transfer fee to the Company. The Company may establish the transfer fee amount on a case-by-case basis.

Section 10.04 Assignee’s Rights and Limitations

An Assignee is entitled to receive distributions from the Company to the same extent that the transferring Member would receive distributions under this Agreement.

An Assignee has substantially fewer rights than a Member. Assignees only hold a right to receive economic benefits, if any, when distributed from the Company in respect to the assigned Membership Interest. Other limitations on Assignees’ rights include:

access only to those Company records and information specifically required to be provided the Assignees under the Act;

no right to vote in any Company matters; and

no other legal or economic rights.

Section 10.05 Member Disability

The agent of a disabled Member acting under a durable power of attorney or the Legal Representative of a disabled Member may exercise all of the Member’s rights and voting authority, and is entitled to receive distributions of cash or other property from the Company on behalf of the Member.

Section 10.06 Death of a Member

Any interest that is transferred because of the death of a Member will be an Assignee interest. In the event that the deceased Member is the sole Member of the Company, the transferee of such Assignee Interest shall become a Substitute Member under this Agreement.

A transferee of any transfer under this Section will be bound by all of the terms of this Agreement.

Section 10.07 Voting Rights of Transferred Interests

A Member who transfers a Membership Interest to an Assignee will continue to hold all voting rights associated with the assigned Interest until the Assignee of the transferred Interest satisfies all of the requirements to become a Substitute Member under Section 10.03.

In the case of an Assignee who holds an Interest received because of the death of a Member, the voting rights associated with the transferred Interest will be suspended and disregarded for purposes of calculating votes until the Assignee of the transferred Interest satisfies all of the requirements to become a Substitute Member under Section 10.03.

Section 10.08 Non-Recognition of an Unauthorized Transfer or Assignment; Accumulation of Amounts to Be Distributed

The Company is not required to recognize the purported Interest of any transferee or Assignee who alleges to have received any Interest other than by an authorized transfer or Assignment under this Agreement. If the ownership of a Membership Interest is in doubt, or if there is reasonable doubt as to who is entitled to a distribution attributable to an Interest, the Managing Member may accumulate the amounts to be distributed until this issue is finally determined and resolved.

Section 10.09 Creditor Rights; Charging Order Sole Exclusive Remedy

If a creditor obtains a judgment by a court of competent jurisdiction against any Member or Assignee, the court may charge the Member or Assignee’s Interest with payment of the unsatisfied amount of the judgment from distributions payable to the affected Interest, but only to the extent required by the Act. To the extent any interest is charged with satisfaction of a judgment, the judgment creditor will receive no more than the rights of an Assignee; the creditor will not be admitted as a Member of the Company.

The charging order is the exclusive remedy by which a judgment creditor of a Member or an Assignee of a Membership Interest may obtain any satisfaction from the Company toward any judgment against the Member or Assignee. This Section does not deprive any Member or Assignee of rights under any exemption laws available to the Member or Assignee.

Section 10.10 Assignee or Charging Order Holder Assumes Tax Liability

The Assignee of a Membership Interest and any person who acquires a charging order against a Membership Interest shall report income, gains, losses, deductions, and credits regarding the interest for the period in which the Assignee Interest is held or for the period the charging order is outstanding.

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Article Eleven

Dissolution and Termination

Section 11.01 Dissolving the Company

The Company will be dissolved only if an event described in this Section occurs.

(a) Date Designated by the Members

The Company will be dissolved on a date designated by the Members.

(b) Judicial Dissolution

The Company will be dissolved upon the entry of a decree of judicial dissolution by a court of competent jurisdiction.

After dissolution, the Company shall conduct only activities necessary to wind up its affairs.

Section 11.02 Liquidating the Company Property

After dissolving the Company, the Managing Member shall liquidate the Company property, apply and distribute the proceeds from the liquidation of the property under this Agreement, and cause the termination of the Company’s Articles of Organization.

(a) Creditor Payment and Provision for Reserves

First, the proceeds from the liquidated property will be applied toward or paid to any non-Member creditor of the Company in the order of payment required by applicable law. After paying liabilities owed to non-Member creditors, the Managing Member shall set up a reserve of assets as the Managing Member determines is reasonably necessary for any contingent or unforeseen liabilities or obligations of the Company.

(1) Creating an Escrow Account

The Managing Member may, but need not, pay over any reserves for contingent liabilities to a bank to hold in escrow for later payment.

(2) Distributing Reserves

The Managing Member shall distribute any remaining reserves after the Managing Member is reasonably satisfied that any liabilities have been adequately resolved. The remaining reserves will be distributed to the Members or their assigns in the order of priority for Member distributions set forth in this Agreement.

(b) Distributing Property after Paying Liabilities and Establishing Reserves

After paying liabilities and establishing reserves, the Managing Member shall satisfy any debts owed to Members with any remaining net assets of the Company, and then distribute any remaining assets to the Members in proportion to their Membership Interests.

(c) Non-Cash Assets

If any part of the net assets distributable to the Members consists of notes, accounts receivable, or other non-cash assets, the Managing Member may take whatever steps it considers to be appropriate to convert the assets into cash or any other form to facilitate distribution. If any in-kind assets of the Company are to be distributed, those assets will be distributed using their fair market value at the distribution date, as determined by the Managing Member.

Section 11.03 Company Property Sole Source

Company property is the sole source for the payment of any debts or liabilities owed by the Company. Any return of Capital Contributions or liquidation amounts to the Members or Assignees (or both if the Company has Members and Assignees) will be satisfied only to the extent that the Company has adequate assets. If the Company does not have adequate assets to return the Capital Contributions, neither the Members nor Assignees will have any recourse against the Company or any other Members or Assignees, except to the extent that other Members may have outstanding debts or obligations owing to the Company.

Section 11.04 Company Asset Sales during Term of the Company

The sale of Company assets during the term of the Company does not constitute liquidation, dissolution, or termination of the Company as defined under this Article. The Company may reinvest the sale proceeds in other assets consistent with the business purposes for the Company. Further, the Members may participate in any real property exchange as defined in Code Section 1031 if the exchange fulfills the business purposes of the Company.

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Article Twelve

General Matters

Section 12.01 Successors and Assigns

Subject to the restrictions on transfer in this Agreement, this Agreement binds and inures to the benefit of the Members, and to their respective successors, personal representatives, heirs, and assigns.

Section 12.02 Definitions

For purposes of this Agreement, the following terms have the following meanings.

(a) Act

Act means the Minnesota Revised Uniform Limited Liability Company Act, Minnesota Statutes Chapter 322C, as amended from time to time.

(b) Additional Member

Additional Member means a Member who is admitted to the Company after this Agreement is signed, but who is not a Substitute Member.

(c) Additional Capital Contribution

See Capital Contribution.

(d) Agreement

Agreement means this Operating Agreement, as amended from time to time.

(e) Articles of Organization

Articles of Organization means the Articles of Organization filed with the Secretary of State of Minnesota as required by the Act, or any other similar instrument required to be filed by the laws of any other state in which the Company intends to conduct business.

(f) Assignee

Assignee means the recipient of a Membership Interest by Assignment.

(g) Assignment

Assignment means any method—direct or indirect, voluntary or involuntary—by which the legal or beneficial ownership of any interest in the Company is transferred or changed, including:

any sale, exchange, gift, or any other form of conveyance, assignment, or transfer;

a change in the beneficial interests of any trust or estate that holds any interest in the Company and a distribution from any trust or estate;

a change in the ownership of any Member or Assignee that is a corporation, partnership, limited liability company, or other legal entity, including the dissolution of the entity;

a change in legal or beneficial ownership or other form of transfer resulting from the death or divorce of any Member or Assignee or the death of the spouse of any Member or Assignee;

any transfer or charge under a charging order issued by any court; and

any levy, foreclosure, or similar seizure associated with the exercise of a creditor’s rights in connection with a mortgage, pledge, encumbrance, or security interest.

Assignment does not include any mortgage, pledge, or similar voluntary encumbrance or grant of a security interest in any Interest in the Company.

(h) Capital Contribution

Capital Contribution means the total cash and other consideration contributed and agreed to be contributed to the Company by each Member. Each Initial Capital Contribution is shown in Exhibit A, attached and incorporated into this Agreement. Additional Capital Contribution means the total cash and other consideration contributed to the Company by each Member other than the Initial Capital Contribution. Any reference in this Agreement to the Capital Contribution of a current Member includes any Capital Contribution previously made by any prior Member regarding that Member’s Interest. The value of a Member’s Capital Contribution is the amount of cash plus the fair market value of other property contributed to the Company.

(i) Company

Company means [COMPANY NAME], a Minnesota Limited Liability Company.

(j) Delivery

Delivery means:

personal delivery to a party;

mailing by certified United States mail to the last known address of the party to whom delivery is made, with return receipt requested to the party making delivery;

facsimile transmission to a party when receipt is confirmed in writing or by electronic transmission back to the sending party; or

electronic mail transmission to a party when receipt is confirmed in writing or by electronic mail transmission back to the sending party.

The effective date of delivery is the date of personal delivery or the date of the return receipt, if received by the sending party. If no return receipt is provided, then the effective date will be the date the transmission would have normally been received by certified mail if there is evidence of mailing.

(k) Disability

Disability of a Member means that any one of the following has occurred:

the Member has been declared incompetent, incapacitated, or otherwise legally unable to effectively manage his or her property or financial affairs by a court of competent jurisdiction;

the Member’s incapacity has been certified in writing by two licensed physicians, one of whom is the Member’s personal physician, after examining the Member;

the Member has disappeared or is absent for unexplained reasons, causing the Member to be unable to manage his or her property or financial affairs effectively; or

the Member is being detained under duress or under law, causing the Member to be unable to manage his or her property or financial affairs effectively.

A Member’s disappearance, absence, or detention under duress may be established by an affidavit of any other Member. The affidavit must describe the circumstances of the individual’s disappearance, absence, or detention. Any third party dealing in good faith with the Company may rely upon the affidavit.

Upon regaining capacity, a formerly incapacitated Member will have all the rights, power, and authority originally granted to the Member by this Agreement.

(l) Including and Includes

In this Agreement, the words include, includes, and including mean include without limitation, includes without limitation, and including without limitation, respectively. Include, includes, and including are words of illustration and enlargement, not words of limitation or exclusivity.

(m) Initial Capital Contribution

See Capital Contribution.

(n) Internal Revenue Code

References to the Internal Revenue Code or to its provisions are to the Internal Revenue Code of 1986, as amended from time to time, and any corresponding Treasury Regulations. References to the Treasury Regulations are to the Treasury Regulations under the Internal Revenue Code in effect. If a particular provision of the Internal Revenue Code is renumbered or a subsequent federal tax law supersedes the Internal Revenue Code, any reference is to the renumbered provision or to the corresponding provision of the subsequent law, unless the result would be clearly contrary to the Members’ intent as expressed in this Agreement. The same rule applies to Treasury Regulations references.

(o) Legal Representative or Personal Representative

The terms Legal Representative and Personal Representative mean a person’s guardian, conservator, executor, administrator, Trustee, or any other person or entity personally representing a person or the person’s estate.

(p) Majority in Interest

Majority or Majority in Interest means that 51 or more votes out of 100 votes that may be cast will determine the matter subject to the vote.

(q) Managing Member

Managing Member means the Member who is responsible for managing the business of the Company.

(r) Member

Member means any person or legal entity designated in this Agreement as a Member or any person or legal entity who becomes a Member under this Agreement.

(s) Members

The term Members means all of the Members of the Company.

(t) Membership Interest

Membership Interest means the ownership interest and rights of a Member in the Company, including the Member’s right to a distributive share of the profits and losses, the distributions, and the property of the Company and the right to consent or approve Company actions. All Membership Interests are subject to the restrictions on transfer imposed by this Agreement. Each Member’s Interest is personal property and no Member will acquire any interest in any of the assets of the Company.

Each holder of a Membership Interest will have the right to vote the holder’s proportionate interest in the Company regarding all matters that Members have a right to vote on under this Agreement or by law.

Example: A Member with a Membership Interest of 35.5% will have a 35.5% ownership interest in the Company, and will have 35.5 votes out of 100 votes that may be cast on matters that require the consent or affirmative action of the Members.

Membership Interests may be adjusted from time to time under Article Three.

(u) Person

Person has the same broad meaning as defined in Internal Revenue Code Section 7701(a)(1). The term specifically includes the Company; its successors and assigns; each Member or Assignee, and their successors, assigns, heirs, and personal representatives. The phrase each other person identifies any individual, corporation, partnership, limited liability company, trust, or other party whose interest may be affected, adversely or otherwise, by the resolution of any dispute, contest, or claim.

(v) Property

Property means all Company property and rights as described in Exhibit A and any property—real or personal, tangible or intangible—otherwise acquired by the Company.

(w) Securities Act

Securities Act refers to the Securities Act of 1933, as amended.

(x) Substitute Member

Substitute Member means any person not previously a Member who acquires a Membership Interest and is admitted as a Substitute Member according to the terms of Section 10.03 of this Agreement.

(y) Taxable Year

Taxable Year means the calendar year or any other accounting period selected by the Manager. Taxable Year is synonymous with fiscal year for all purposes of this Agreement.

Section 12.03 Changing the Company’s Situs

The Company’s situs may be changed only by the unanimous written consent of all of the Members.

Section 12.04 General Matters

The following general provisions and rules of construction apply to this Agreement:

(a) Multiple Originals; Validity of Copies

This Agreement may be signed in any number of counterparts, each of which will be deemed an original.

Any person may rely on a copy of this Agreement that the Managing Member certifies to be a true copy to the same effect as if it were an original.

(b) Singular and Plural; Gender

Unless the context requires otherwise, words denoting the singular may be construed as plural and words of the plural may be construed as denoting the singular. Words of one gender may be construed as denoting another gender as is appropriate within the context. The word or, when used in a list of more than two items, may function as both a conjunction and a disjunction as the context requires or permits.

(c) Headings of Articles, Sections, and Subsections

The headings of Articles, Sections, and Subsections used within this Agreement are included solely for the reader’s convenience and reference. They have no significance in the interpretation or construction of this Agreement.

(d) Governing Law

This Agreement is governed, construed, and administered according to the laws of Minnesota, as from time to time amended, except as to trust property required by law to be governed by the laws of another jurisdiction, and unless the situs of administration is changed under Section 12.03.

(e) Notices

Unless otherwise stated, whenever this Agreement calls for notice, the notice must be in writing and must be personally delivered with proof of delivery, or mailed postage prepaid by certified mail, return receipt requested, to the last known address of the party requiring notice. Notice is effective on the date personally delivered or on the date of the return receipt. If a party giving notice does not receive the return receipt but has proof that he or she mailed the notice, notice will be effective on the date it would normally have been received by certified mail. If notice is required to be given to a minor or incapacitated individual, notice must be given to the minor or incapacitated individual’s parent or Legal Representative.

(f) Severability

The invalidity or unenforceability of any provision of this Agreement does not affect the validity or enforceability of any other provision of this Agreement. If a court of competent jurisdiction determines that any provision is invalid, the remaining provisions of this Agreement are to be construed as if the invalid provision had never been included in this Agreement.

Signed:

MEMBER:

[NAME]

Being all the Members of [COMPANY NAME]