Operating Agreement LLC Maryland

A Maryland Limited Liability Company (LLC) Operating Agreement is an internal document that explains how the business will operate. It outlines ownership rights, defines management responsibilities, and establishes the procedures members will follow when making decisions. Some refer to it as a Maryland Operating Agreement or Maryland LLC Company Agreement. Regardless of the name used, it serves as the company’s primary internal governance document.

Many Maryland LLC owners draft the agreement at the time of formation, while others create one later as the business develops. The Operating Agreement is not filed with the state and remains part of the LLC’s internal records.

Is a Maryland Operating Agreement Required?

Maryland does not require LLCs to maintain an Operating Agreement. Under the Maryland Limited Liability Company Act, the agreement may be written, oral, or implied. Although optional, a written Operating Agreement is strongly recommended. Without one, the LLC defaults to Maryland’s statutory provisions, which may not reflect how members intend to structure or manage the company.

Why a Maryland Operating Agreement Matters

Helps preserve limited liability protection

A written Operating Agreement helps demonstrate that the LLC is a separate legal entity from its members. Courts may review internal records when determining whether limited liability protections apply, especially for single member LLCs.

Establishes internal procedures

Maryland’s statutory rules govern the LLC only when no Operating Agreement exists. A written agreement allows members to define their own procedures for voting, distributing profits, managing responsibilities, and resolving disputes.

Required by financial institutions and advisers

Banks, lenders, accountants, and attorneys often request a copy of the Operating Agreement when verifying ownership or confirming who has authority to act on behalf of the business.

Supports Maryland’s Annual Report and Personal Property Return requirement

Maryland LLCs must file an Annual Report each year, and some must also file a Personal Property Return. Assigning responsibility for these filings within the Operating Agreement helps ensure compliance.

Key Provisions to Include in a Maryland Operating Agreement

Basic Company Details

• LLC name
• Business purpose
• Principal office address
• Duration of the LLC
• Federal tax classification

Maryland requires LLC names to contain Limited Liability Company, LLC, or an accepted abbreviation.

Registered Agent and Office

• Name and Maryland street address of the registered agent
• Procedures for updating the registered agent
• Filing requirements with the Maryland State Department of Assessments and Taxation (SDAT)

Member Information

• Names and addresses of the members
• Ownership percentages
• Initial capital contributions

Capital Contributions

• Description of each member’s contribution
• Rules for additional contributions
• Statement that contributions do not earn interest unless agreed

Management Structure

• Whether the LLC is member managed or manager managed
• Duties and authority of managers or members
• Procedures for appointing or removing managers

Profit and Loss Allocation

• Method for allocating profits and losses
• Timing and conditions for distributions
• Confirmation that distributions may not be made if doing so prevents the LLC from meeting its obligations

Tax Election

• Federal tax classification chosen by the LLC
• Statement that certain IRS elections require additional filings

Voting Procedures

• Voting rights of members
• Quorum requirements
• Vote thresholds for approving decisions

Maryland LLCs often use ownership-percentage voting unless modified in the agreement.

Transfers of Interest

• Rules for voluntary or involuntary transfers of interests
• Procedures for admitting new members
• Handling of membership interests in cases of withdrawal, death, or expulsion

Records and Bookkeeping

• Procedures for maintaining company and financial records
• Assignment of responsibility for Maryland’s Annual Report and Personal Property Return
• Statement that failure to file may result in penalties or forfeiture of good standing

Compensation

• Rules for compensating members, managers, or officers
• Reimbursement policies for business expenses

Dissolution

• Events that may lead to dissolution
• Procedures for winding up the LLC’s affairs
• Filing of Articles of Cancellation with the Maryland SDAT

Amendments

• Procedures for updating the Operating Agreement
• Requirement that amendments be made in writing unless otherwise specified

Management Options for Maryland LLCs

Member Managed

Members oversee daily operations and have authority to act for the LLC. This structure suits closely held businesses. Voting rights usually correspond to ownership percentages unless changed in the agreement.

Manager Managed

Members appoint one or more managers to run day-to-day operations. Managers may be members or nonmembers. Members retain authority over major decisions while assigning routine responsibilities to managers.

Creating and Maintaining the Maryland Operating Agreement

Drafting and Signing

The Operating Agreement becomes effective when adopted by the members. Although Maryland recognizes written, oral, and implied agreements, a written version provides greater clarity and reduces conflicts.

Recordkeeping

The agreement should be stored with the LLC’s permanent records. Maryland requires annual reports and, in some cases, personal property filings, making accurate recordkeeping essential.

Amending the Agreement

Members may amend the Operating Agreement by following the procedures outlined in the document. If amendments affect state-filed information, the LLC must file updated documents with Maryland SDAT.