Hawaii LLC Operating Agreement

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LIMITED LIABILITY COMPANY OPERATING AGREEMENT

OF

[________________________________], LLC

A Hawaii Limited Liability Company

THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT (this "Agreement") is made and entered into effective as of the [____] day of [________________], [________] (the "Effective Date"), by and among the Members identified in Schedule A attached hereto.

RECITALS

WHEREAS, the Members desire to form a limited liability company pursuant to the Hawaii Uniform Limited Liability Company Act, Hawaii Revised Statutes Chapter 428 (the "Act"), by filing Articles of Organization with the Hawaii Department of Commerce and Consumer Affairs, Business Registration Division ("DCCA");

WHEREAS, the Members desire to enter into this Operating Agreement to set forth the terms and conditions governing the internal affairs of the Company, the conduct of the Company's business, and the rights, powers, duties, obligations, and liabilities of the Members and any Managers;

WHEREAS, the Members acknowledge that pursuant to HRS § 428-103, this Operating Agreement shall govern relations among the Members, Managers, and the Company, and to the extent this Agreement does not otherwise provide, the Act shall govern such relations;

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members agree as follows:

ARTICLE I - FORMATION AND NAME

Section 1.1 Formation

The Members hereby form a limited liability company pursuant to the Hawaii Uniform Limited Liability Company Act, HRS Chapter 428, by filing Articles of Organization with the Hawaii Department of Commerce and Consumer Affairs, Business Registration Division. The rights and obligations of the Members and Managers shall be as provided in the Act, except as otherwise expressly provided in this Agreement. In the event of any inconsistency between the provisions of this Agreement and the nonwaivable provisions of the Act set forth in HRS § 428-103, the Act shall control.

Section 1.2 Name

The name of the Company shall be:

[________________________________], LLC

The Company's business may be conducted under the above name or such other names as the Members or Managers may from time to time determine, provided that any such name complies with the requirements of the Act and is properly registered with the DCCA.

Section 1.3 Principal Office

The principal office of the Company shall be located at:

Street Address: [________________________________]

City: [________________________________], State: Hawaii Zip: [__________]

The Company may establish and maintain such other offices and places of business within or outside the State of Hawaii as the Members or Managers may from time to time deem advisable.

Section 1.4 Registered Agent and Registered Office

The Company's registered agent for service of process in the State of Hawaii, as required by HRS § 428-105, shall be:

Registered Agent Name: [________________________________]

Registered Agent Address: [________________________________]

City: [________________________________], State: Hawaii Zip: [__________]

The registered agent and registered office may be changed from time to time by filing the appropriate statement with the DCCA as required by HRS § 428-106. The Company shall continuously maintain a registered agent with a business address in Hawaii.

Section 1.5 Term

The Company shall have a perpetual existence and shall continue until dissolved and terminated in accordance with the provisions of this Agreement and the Act.

☐ ALTERNATIVE - SPECIFIED TERM: The Company shall exist for a specified term commencing on the date the Articles of Organization are filed with the DCCA and ending on [__/__/____], unless sooner dissolved in accordance with this Agreement or the Act.

Section 1.6 Fiscal Year

The fiscal year of the Company shall end on:

☐ December 31 of each year (calendar year)

☐ [________________________________] of each year (fiscal year)

ARTICLE II - PURPOSE AND POWERS

Section 2.1 Purpose

The purpose of the Company shall be to engage in:

[________________________________]
[________________________________]
[________________________________]

and any and all other lawful business activities for which limited liability companies may be organized under the Act.

Section 2.2 Powers

The Company shall have all the powers and privileges granted to limited liability companies under the Act and any other applicable laws of the State of Hawaii, including but not limited to the power to:

(a) Conduct its business, carry on its operations, and have and exercise the powers granted by the Act in any state, territory, district, or possession of the United States, or in any foreign country, as may be necessary, convenient, or incidental to the accomplishment of the Company's purpose;

(b) Acquire, hold, own, operate, maintain, improve, lease, mortgage, sell, exchange, convey, or otherwise dispose of real or personal property;

(c) Borrow money and issue evidences of indebtedness, and secure the same by mortgage, pledge, or other encumbrance of the Company's assets;

(d) Enter into, perform, and carry out contracts of every kind and nature;

(e) Sue and be sued, complain, and defend in the Company's name;

(f) Employ agents, employees, independent contractors, attorneys, accountants, and other professionals;

(g) Make charitable, scientific, educational, or benevolent contributions;

(h) Indemnify Members, Managers, officers, employees, and agents of the Company to the fullest extent permitted by law;

(i) Form or acquire interests in other entities; and

(j) Take any and all other actions necessary, convenient, or incidental to the accomplishment of the Company's purposes.

ARTICLE III - MEMBERS AND MEMBERSHIP INTERESTS

Section 3.1 Initial Members

The names, addresses, and initial Percentage Interests of the Members are set forth in Schedule A attached hereto and incorporated herein by reference.

Section 3.2 Membership Interests

Each Member's ownership interest in the Company (the "Membership Interest") shall consist of:

(a) Distributional Interest: The right to receive distributions of the Company's assets as provided in this Agreement;

(b) Governance Rights: The right to participate in the management and conduct of the Company's business, including voting rights, as provided in this Agreement and the Act; and

Section 3.3 Percentage Interests

Each Member's Percentage Interest represents such Member's proportionate share of the Company's profits, losses, and distributions, and voting power, as set forth in Schedule A. The aggregate of all Members' Percentage Interests shall at all times equal one hundred percent (100%).

Section 3.4 Classes of Membership Interests

☐ SINGLE CLASS: All Membership Interests shall be of a single class with identical rights, preferences, privileges, and obligations.

☐ MULTIPLE CLASSES: The Company shall have the following classes of Membership Interests:

Class A Membership Interests:
[________________________________]

Class B Membership Interests:
[________________________________]

Section 3.5 Certificates

☐ Membership Interests shall NOT be certificated.

☐ Membership Interests SHALL be certificated. The Company shall issue certificates evidencing Membership Interests, which certificates shall be in such form as the Members or Managers may approve and shall contain such legends as may be required by applicable law or this Agreement.

Section 3.6 Nature of Membership Interest

A Membership Interest constitutes personal property. Pursuant to HRS § 428-501, a Member is not a co-owner of, and has no transferable interest in, property of the Company. A Member's Distributional Interest may be transferred only in accordance with Article X of this Agreement.

Section 3.7 Additional Members

Additional Members may be admitted to the Company only with the consent of:

☐ A Majority of the Members

☐ Members holding at least [____]% of the Percentage Interests

☐ All Members (unanimous consent)

Any additional Member shall execute a counterpart of this Agreement or a joinder agreement agreeing to be bound by the terms hereof.

ARTICLE IV - CAPITAL CONTRIBUTIONS

Section 4.1 Initial Capital Contributions

Each Member has contributed or agrees to contribute to the Company the capital set forth opposite such Member's name in Schedule A (the "Initial Capital Contribution"). Initial Capital Contributions shall be made as follows:

Form of Contribution:

☐ Cash in the amount of: $[________________________________]

☐ Property described as: [________________________________]
Agreed Value: $[________________________________]

☐ Services to be rendered: [________________________________]
Agreed Value: $[________________________________]

☐ Promissory Note due on: [__/__/____]
Principal Amount: $[________________________________]

Section 4.2 Capital Accounts

A separate capital account (the "Capital Account") shall be established and maintained for each Member in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv). Each Member's Capital Account shall be:

(a) Increased by:

The amount of money contributed by such Member;
The fair market value of property contributed by such Member (net of liabilities secured by such property);
Allocations of Net Profit and items of Company income and gain allocated to such Member; and
The amount of any Company liabilities assumed by such Member or secured by property distributed to such Member.

(b) Decreased by:

The amount of money distributed to such Member;
The fair market value of property distributed to such Member (net of liabilities secured by such property);
Allocations of Net Loss and items of Company loss and deduction allocated to such Member; and
The amount of any liabilities of such Member assumed by the Company or secured by property contributed by such Member.

Section 4.3 Additional Capital Contributions

(a) Mandatory Additional Contributions: No Member shall be required to make any additional capital contributions to the Company beyond such Member's Initial Capital Contribution, except:

☐ As unanimously agreed by all Members in writing; or

☐ As approved by Members holding at least [____]% of the Percentage Interests.

(b) Voluntary Additional Contributions: A Member may make additional capital contributions only with the consent of:

☐ A Majority of the Members; or

☐ Members holding at least [____]% of the Percentage Interests.

(c) Failure to Contribute: If a Member fails to make a required additional capital contribution within [____] days after written notice, the non-defaulting Members may elect to:

☐ Advance the defaulting Member's contribution as a loan bearing interest at [____]% per annum;

☐ Reduce the defaulting Member's Percentage Interest proportionately;

☐ Exercise other remedies as provided in this Agreement or by law.

Section 4.4 Capital Contribution Interest

No Member shall receive interest on such Member's Capital Contributions or Capital Account balance unless otherwise unanimously agreed in writing.

Section 4.5 Withdrawal of Capital

No Member shall have the right to withdraw or demand the return of such Member's Capital Contribution except upon the dissolution and winding up of the Company or as otherwise expressly provided in this Agreement. No Member shall have priority over any other Member with respect to the return of Capital Contributions.

Section 4.6 Loans by Members

(a) Any Member may, with the consent of a Majority of the Members (or, if Manager-Managed, the Manager(s)), loan money to the Company upon such terms and conditions as may be agreed upon by the lending Member and the Company.

(b) Loans by Members to the Company shall not increase the lending Member's Capital Account or Percentage Interest.

(c) Pursuant to HRS § 428-409(f), a Member who loans money to the Company has the same rights and obligations with respect to such loan as a person who is not a Member.

ARTICLE V - ALLOCATIONS OF PROFITS AND LOSSES

Section 5.1 Net Profits and Net Losses

"Net Profit" and "Net Loss" for any fiscal year or other period shall mean the taxable income or loss of the Company for such period as determined under the accounting method used by the Company for federal income tax purposes, with the following adjustments:

(a) All items of income, gain, loss, and deduction allocated to Members pursuant to other provisions of this Article V shall be excluded;

(b) Any tax-exempt income received by the Company shall be added to taxable income;

(c) Any expenditures of the Company not deductible in computing taxable income and not properly chargeable to Capital Accounts shall be subtracted from taxable income; and

(d) In lieu of depreciation, amortization, and other cost recovery deductions, there shall be taken into account book depreciation as computed under Treasury Regulation Section 1.704-1(b)(2)(iv)(g).

Section 5.2 General Allocations

Except as otherwise provided in this Agreement, Net Profits and Net Losses and all items of income, gain, loss, deduction, and credit shall be allocated among the Members in accordance with their respective Percentage Interests.

Section 5.3 Special Allocations

The following special allocations shall be made in the following order of priority:

(a) Minimum Gain Chargeback: Notwithstanding any other provision of this Article V, if there is a net decrease in "partnership minimum gain" (as defined in Treasury Regulation Section 1.704-2(d)) during any fiscal year, each Member shall be specially allocated items of Company income and gain for such year in an amount equal to such Member's share of the net decrease in partnership minimum gain, determined in accordance with Treasury Regulation Section 1.704-2(g)(2).

(b) Qualified Income Offset: In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible.

(c) Gross Income Allocation: In the event any Member has a deficit Capital Account at the end of any fiscal year which is in excess of the sum of (i) the amount such Member is obligated to restore and (ii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible.

(d) Nonrecourse Deductions: "Nonrecourse deductions" (as defined in Treasury Regulation Section 1.704-2(b)(1)) shall be allocated among the Members in accordance with their Percentage Interests.

Section 5.4 Curative Allocations

The allocations set forth in Section 5.3 (the "Regulatory Allocations") are intended to comply with certain requirements of the Treasury Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss, or deduction. The Members shall make such offsetting special allocations in whatever manner they determine appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of this Agreement.

Section 5.5 Tax Allocations

(a) Except as otherwise provided herein, for income tax purposes, each item of income, gain, loss, and deduction shall be allocated among the Members in the same manner as its correlative item of "book" income, gain, loss, or deduction is allocated pursuant to this Article V.

(b) In accordance with Internal Revenue Code Section 704(c) and the Treasury Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial fair market value.

Section 5.6 Allocation Upon Transfer

If any Membership Interest is transferred during a fiscal year, the Net Profit or Net Loss attributable to such interest for such fiscal year shall be allocated between the transferor and transferee:

☐ Based on the portion of the fiscal year during which each was the owner of such interest (interim closing method); or

☐ By prorating the annual Net Profit or Net Loss based on the number of days each was the owner.

ARTICLE VI - DISTRIBUTIONS

Section 6.1 Distributions Generally

Distributions of available cash or other assets of the Company shall be made to the Members at such times and in such amounts as determined by:

☐ A Majority of the Members (if Member-Managed); or

☐ The Manager(s) (if Manager-Managed); or

☐ [________________________________].

Section 6.2 Distribution Allocation

Except as otherwise provided in this Agreement or as otherwise agreed by the Members, all distributions shall be made to the Members in proportion to their respective Percentage Interests.

Section 6.3 Tax Distributions

(a) Quarterly Tax Distributions: Notwithstanding any other provision of this Agreement, the Company shall distribute to each Member, on or before the fifteenth (15th) day of April, June, September, and January of each year, an amount equal to such Member's estimated federal and state income tax liability arising from Company income allocated to such Member for the applicable quarter.

(b) Calculation: Tax distributions shall be calculated by multiplying each Member's share of the Company's net taxable income by the highest combined federal, Hawaii state, and applicable local income tax rate applicable to individuals.

(c) Offset: Any tax distributions made pursuant to this Section 6.3 shall be treated as advances against, and shall reduce, future distributions to which such Member would otherwise be entitled under this Agreement.

Section 6.4 Limitations on Distributions

(a) No distribution shall be made if, after giving effect to the distribution:

(i) The Company would not be able to pay its debts as they become due in the ordinary course of business; or

(ii) The Company's total assets would be less than the sum of its total liabilities plus, unless this Agreement provides otherwise, the amount that would be needed to satisfy the preferential rights upon dissolution of Members whose preferential rights are superior to the rights of the Member receiving the distribution.

(b) The Members or Managers may base a determination that a distribution is not prohibited under this Section on:

(i) Financial statements prepared on the basis of accounting practices and principles that are reasonable under the circumstances;

(ii) A fair valuation; or

(iii) Any other method that is reasonable under the circumstances.

Section 6.5 Distribution in Kind

(a) Distributions may be made in cash or in kind, as determined by the Members or Managers.

(b) Any distribution of property in kind shall be subject to conditions prescribed by the Members or Managers, and the fair market value of such property shall be determined by the Members or Managers in good faith.

Section 6.6 Record Date

The Members or Managers may fix a record date for determining which Members are entitled to receive any distribution. If no record date is fixed, the record date shall be the date the distribution is authorized.

ARTICLE VII - MANAGEMENT

Section 7.1 Management Structure

The Company shall be managed as follows (select one):

☐ MEMBER-MANAGED: The Company shall be managed by the Members in accordance with Section 7.2.

☐ MANAGER-MANAGED: The Company shall be managed by one or more Managers in accordance with Section 7.3.

Section 7.2 Member-Managed Company

If this Company is Member-Managed:

(a) Equal Management Rights: Each Member shall have equal rights in the management and conduct of the Company's business, regardless of such Member's Percentage Interest, except as otherwise provided in this Agreement.

(b) Voting: Except as otherwise provided in this Agreement or required by the Act:

☐ Any matter relating to the business of the Company shall be decided by a Majority of the Members.

☐ Any matter relating to the business of the Company shall be decided by Members holding a majority of the Percentage Interests.

(c) Agency Authority: Each Member is an agent of the Company for the purpose of its business and may bind the Company in the ordinary course of business. The act of a Member that is not apparently for carrying on in the ordinary way the business of the Company does not bind the Company unless authorized by all the other Members.

(d) Matters Requiring Unanimous Consent: Notwithstanding subsection (b), the following matters shall require the unanimous consent of all Members:

(i) Amending this Agreement or the Articles of Organization;

(ii) Admitting a new Member;

(iii) Authorizing a Member to do any act on behalf of the Company that contravenes this Agreement;

(iv) Undertaking any act that would make it impossible to carry on the ordinary business of the Company;

(v) Selling, leasing, exchanging, or otherwise disposing of all, or substantially all, of the Company's assets outside the ordinary course of business;

(vi) Approving the merger, conversion, or domestication of the Company;

(vii) Dissolving the Company;

(viii) Authorizing the incurrence of indebtedness in excess of $[________________________________]; and

(ix) [________________________________].

Section 7.3 Manager-Managed Company

If this Company is Manager-Managed:

(a) Appointment of Managers: The initial Manager(s) of the Company shall be:

Manager Name: [________________________________]
Manager Address: [________________________________]

(b) Number of Managers: The Company shall have [____] Manager(s). The number of Managers may be changed by the affirmative vote of Members holding a majority of the Percentage Interests.

(c) Exclusive Authority: Subject to the provisions of this Agreement, the Manager(s) shall have exclusive authority to manage and conduct the Company's business. Members who are not Managers shall have no right to participate in the management of the Company.

(d) Powers of Managers: The Manager(s) shall have the power to do all things necessary or convenient to carry out the business and affairs of the Company, including but not limited to:

(i) Entering into contracts and agreements on behalf of the Company;

(ii) Opening and maintaining bank accounts;

(iii) Hiring and firing employees and independent contractors;

(iv) Acquiring, holding, and disposing of property;

(v) Borrowing money and pledging Company assets as security;

(vi) Filing tax returns and making tax elections;

(vii) Initiating or settling litigation;

(viii) Distributing cash and other assets to Members; and

(ix) Taking any other actions necessary for the operation of the Company.

(e) Matters Requiring Member Approval: Notwithstanding the foregoing, the following matters shall require the approval of Members:

Approval Threshold: ☐ Majority of Members ☐ [____]% of Percentage Interests ☐ Unanimous

(i) Amending this Agreement or the Articles of Organization;

(ii) Admitting a new Member;

(iii) Selling, leasing, exchanging, or otherwise disposing of all, or substantially all, of the Company's assets;

(iv) Approving the merger, conversion, or domestication of the Company;

(v) Dissolving the Company;

(vi) Incurring indebtedness in excess of $[________________________________];

(vii) Entering into any transaction with a Member, Manager, or Affiliate thereof;

(viii) Making capital calls;

(ix) Approving the annual budget; and

(x) [________________________________].

(f) Election and Removal of Managers: Managers shall serve until death, resignation, removal, or disqualification. A Manager may be removed with or without cause by the affirmative vote of Members holding a majority of the Percentage Interests.

(g) Resignation: A Manager may resign at any time by giving written notice to the Members. Such resignation shall be effective upon receipt of the notice or at such later time as may be specified therein.

(h) Vacancies: Any vacancy in the position of Manager shall be filled by the affirmative vote of Members holding a majority of the Percentage Interests.

(i) Compensation: Managers shall receive such compensation for their services as may be approved by the Members.

Section 7.4 Officers

(a) The Members (if Member-Managed) or Manager(s) (if Manager-Managed) may appoint one or more officers of the Company, including a President, Vice President, Secretary, Treasurer, or such other officers as may be deemed appropriate.

(b) Officers shall have such authority and perform such duties as may be assigned by the Members or Managers or as may be set forth in resolutions adopted by the Members or Managers.

(c) Officers shall serve at the pleasure of the Members or Managers and may be removed with or without cause at any time.

Section 7.5 Fiduciary Duties

Pursuant to HRS § 428-409:

(a) Duty of Loyalty: Each Member (in a Member-Managed Company) or Manager (in a Manager-Managed Company) owes to the Company and the other Members a duty of loyalty limited to:

(i) Accounting to the Company and holding as trustee for it any property, profit, or benefit derived in the conduct or winding up of the Company's business or from use of the Company's property;

(ii) Refraining from dealing with the Company as or on behalf of a party having an interest adverse to the Company; and

(iii) Refraining from competing with the Company before dissolution.

(b) Duty of Care: Each Member (in a Member-Managed Company) or Manager (in a Manager-Managed Company) owes a duty of care limited to refraining from engaging in:

(i) Grossly negligent or reckless conduct;

(ii) Intentional misconduct; or

(iii) A knowing violation of law.

(c) Good Faith and Fair Dealing: Each Member and Manager shall discharge duties and exercise rights under this Agreement consistent with the obligation of good faith and fair dealing.

(d) Business Judgment: A Member or Manager does not violate a duty or obligation merely because the Member's or Manager's conduct furthers such person's own interest.

Section 7.6 Indemnification of Managers

The Company shall indemnify and hold harmless each Manager to the fullest extent permitted by Article XIII of this Agreement.

ARTICLE VIII - MEETINGS AND VOTING

Section 8.1 Meetings of Members

(a) Annual Meeting: An annual meeting of Members shall be held on [________________________________] of each year, or at such other time as the Members may determine, for the purpose of transacting such business as may properly come before the meeting.

(b) Special Meetings: Special meetings of Members may be called by:

☐ Any Member; or

☐ Members holding at least [____]% of the Percentage Interests.

(c) Place of Meetings: Meetings may be held at the Company's principal office or at such other place as may be designated in the notice of meeting.

Section 8.2 Notice of Meetings

(a) Written notice of each meeting of Members shall be given to each Member not less than [____] days nor more than [____] days before the date of the meeting.

(b) Notice shall state the place, date, and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called.

(d) A Member may waive notice before, at, or after a meeting. Attendance at a meeting constitutes waiver of notice unless the Member objects at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened.

Section 8.3 Quorum

(a) A quorum for the transaction of business at any meeting of Members shall consist of:

☐ A Majority of the Members; or

☐ Members holding at least [____]% of the Percentage Interests.

(b) If a quorum is not present, the meeting may be adjourned to a later date.

Section 8.4 Voting

(a) Voting Rights: Each Member shall be entitled to vote on matters submitted to a vote of the Members.

(b) Voting Power:

☐ Each Member shall have one vote regardless of Percentage Interest (per capita voting).

☐ Each Member shall have voting power in proportion to such Member's Percentage Interest.

(c) Proxy Voting: A Member may vote by proxy executed in writing by the Member or by the Member's duly authorized attorney-in-fact. A proxy shall be revocable unless expressly provided therein to be irrevocable and coupled with an interest.

Section 8.5 Action Without Meeting

Any action required or permitted to be taken at a meeting of Members may be taken without a meeting if a written consent setting forth the action to be taken is signed by Members having not less than the minimum number of votes necessary to authorize such action. Such written consent shall be filed with the records of the Company. Action taken by written consent shall be effective when all necessary consents have been received unless the consent specifies a different effective date.

Section 8.6 Participation by Remote Communication

Members may participate in any meeting by means of telephone conference, video conference, or similar communications equipment by which all persons participating can hear each other at the same time. Participation by such means shall constitute presence in person at the meeting.

ARTICLE IX - MEMBER DISSOCIATION

Section 9.1 Events Causing Dissociation

Pursuant to HRS § 428-601, a Member shall be dissociated from the Company upon the occurrence of any of the following events:

(a) The Company's having notice of the Member's express will to withdraw upon the date of notice or on a later date specified by the Member;

(b) An event agreed to in this Agreement as causing the Member's dissociation;

(d) The Member's expulsion by the unanimous vote of the other Members if:

(i) It is unlawful to carry on the Company's business with the Member;

(ii) There has been a transfer of substantially all of the Member's Distributional Interest (other than a transfer for security purposes or a court order charging the Member's Distributional Interest which has not been foreclosed);

(iii) The Member is a corporation, limited liability company, or partnership that has filed articles of dissolution or the equivalent, or has had its charter or registration revoked, or its right to conduct business suspended by the jurisdiction of its organization; or

(iv) The Member is an individual who has become incapacitated and a personal representative, conservator, or guardian is appointed;

(e) The Member's expulsion by judicial determination on application by the Company or another Member because the Member:

(i) Engaged in wrongful conduct that adversely and materially affected the Company's business;

(ii) Willfully or persistently committed a material breach of this Agreement or of a duty owed to the Company or other Members; or

(iii) Engaged in conduct relating to the Company's business that makes it not reasonably practicable to carry on the business with the Member;

(f) The Member's becoming a debtor in bankruptcy;

(g) The Member's death or, if an entity, its dissolution or termination; or

(h) Other events specified in this Agreement: [________________________________].

Section 9.2 Member's Power to Dissociate

Pursuant to HRS § 428-602:

(a) A Member has the power to dissociate from the Company at any time, rightfully or wrongfully, by express will.

(b) A Member's dissociation is wrongful only if:

(i) It is in breach of an express provision of this Agreement; or

(ii) Before the expiration of a specified term (if applicable):

The Member withdraws by express will;
The Member is expelled by judicial determination;
The Member becomes a debtor in bankruptcy; or
The Member (if an entity) willfully dissolves or terminates.

(c) A Member who wrongfully dissociates is liable to the Company and other Members for damages caused by the dissociation.

Section 9.3 Effect of Dissociation

Upon dissociation:

(a) The dissociated Member's right to participate in the management and conduct of the Company's business terminates;

(b) The dissociated Member's duty of loyalty under HRS § 428-409(b)(3) (duty not to compete) terminates;

(c) The dissociated Member's duties of loyalty and care under HRS § 428-409(b) and (c) continue only with regard to matters arising and events occurring before the Member's dissociation; and

(d) The dissociated Member may participate only to the extent necessary to wind up the Company's business if the Company is dissolved and being wound up.

Section 9.4 Purchase of Dissociated Member's Interest

(a) At-Will Company: If the Company is an at-will company and a Member's dissociation does not result in dissolution:

(i) The Company shall purchase the dissociated Member's Distributional Interest for its fair value determined as of the date of dissociation;

(ii) The purchase price shall be paid within [____] days after determination of fair value;

(iii) The purchase price may be paid in installments over a period not exceeding [____] years, with interest at [____]% per annum.

(b) Specified Term Company: If the Company has a specified term:

(i) If the Company dissolves and winds up before the expiration of its term, the dissociated Member's rights shall be determined under Article XIV; and

(ii) If the Company does not dissolve, the Company shall purchase the dissociated Member's Distributional Interest upon expiration of the specified term.

☐ Agreement of the Company and the dissociated Member; or

☐ An independent appraiser selected by mutual agreement or, if the parties cannot agree, by the Circuit Court of the State of Hawaii pursuant to HRS § 428-702.

(d) Offset for Damages: If the Member's dissociation was wrongful, the Company may offset against the purchase price any damages resulting from the wrongful dissociation.

ARTICLE X - TRANSFER OF MEMBERSHIP INTERESTS

Section 10.1 Restrictions on Transfer

(a) No Member may Transfer all or any portion of such Member's Membership Interest except in compliance with this Article X.

(b) For purposes of this Agreement, "Transfer" means any sale, assignment, gift, pledge, hypothecation, encumbrance, or other disposition, whether voluntary or involuntary, by operation of law or otherwise.

Section 10.2 Permitted Transfers

A Member may Transfer all or a portion of the Member's Membership Interest without the consent of the other Members to:

(a) A trust for the benefit of the Member or the Member's immediate family members;

(b) An entity wholly owned by the Member;

(d) A co-Member.

Any such transferee shall be subject to the terms of this Agreement.

Section 10.3 Right of First Refusal

(a) Offer Notice: Before any Member (the "Selling Member") may Transfer any Membership Interest (other than a Permitted Transfer under Section 10.2), the Selling Member shall first offer such interest to the Company and the other Members (the "Non-Selling Members") by delivering a written notice (the "Offer Notice") specifying:

(i) The portion of the Membership Interest to be Transferred;

(ii) The proposed purchase price and terms of payment;

(iii) The name and address of the proposed transferee; and

(iv) Any other material terms of the proposed Transfer.

(b) Company's Right: The Company shall have the first right to purchase all (but not less than all) of the offered Membership Interest on the terms set forth in the Offer Notice. The Company shall have [____] days from receipt of the Offer Notice to exercise this right by written notice to the Selling Member.

(c) Non-Selling Members' Right: If the Company does not exercise its right, the Non-Selling Members shall have the right to purchase the offered Membership Interest pro rata based on their respective Percentage Interests (or in such other proportions as they may agree). The Non-Selling Members shall have [____] days from the expiration of the Company's option period to exercise this right.

(d) Closing: Any purchase pursuant to this Section 10.3 shall be closed within [____] days after exercise of the option.

(e) Transfer to Third Party: If neither the Company nor the Non-Selling Members exercise their rights, the Selling Member may Transfer the offered Membership Interest to the proposed transferee on terms no more favorable to the transferee than those set forth in the Offer Notice, provided the Transfer is completed within [____] days.

Section 10.4 Rights of Transferees

(a) Pursuant to HRS § 428-502, a Transfer of a Distributional Interest does not entitle the transferee to become or exercise any rights of a Member.

(b) A transferee of a Distributional Interest shall only be entitled to receive distributions to which the transferring Member would have been entitled.

(i) The transferring Member grants the transferee such right in accordance with this Agreement; and

(ii) All other Members consent (or such lesser approval as provided in Section 3.7).

(d) A transferee who becomes a Member is subject to all the terms and conditions of this Agreement.

Section 10.5 Effect of Improper Transfer

Any attempted Transfer in violation of this Article X shall be null and void and of no force or effect. The Company shall not be required to recognize any such Transfer or to record any such Transfer on its books.

Section 10.6 Involuntary Transfers

(a) Upon any involuntary Transfer of a Membership Interest (including by reason of death, divorce, bankruptcy, or judgment), the Company and the Non-Selling Members shall have the same rights as provided in Section 10.3, with the [____]-day option periods commencing upon receipt of notice of the involuntary Transfer.

(b) The purchase price for any Membership Interest subject to involuntary Transfer shall be the fair value of such interest as determined in accordance with Section 9.4(c).

ARTICLE XI - ADMISSION OF NEW MEMBERS

Section 11.1 Admission Requirements

A Person may be admitted as a new Member of the Company only upon:

(a) Compliance with the requirements of Article X (if the Person is acquiring an existing Member's interest) or Section 3.7 (if the Person is acquiring a newly issued interest);

(b) Execution of a counterpart of this Agreement or a joinder agreement in form acceptable to the existing Members;

(d) Delivery of such other documents and instruments as the Members may reasonably require.

Section 11.2 Amendment of Schedule A

Upon admission of a new Member, Schedule A shall be amended to reflect the new Member's name, address, Capital Contribution, and Percentage Interest, and the Percentage Interests of existing Members shall be adjusted accordingly.

Section 11.3 Representations and Warranties

As a condition of admission, each new Member shall represent and warrant that:

(a) The new Member has full power and authority to enter into this Agreement;

(b) The new Member is acquiring the Membership Interest for investment purposes only and not with a view to resale or distribution;

(c) The new Member is an "accredited investor" as defined in Regulation D under the Securities Act of 1933 (if applicable);

(d) The new Member has reviewed and understands this Agreement; and

(e) Such other representations as the Members may reasonably require.

ARTICLE XII - BOOKS, RECORDS, AND INFORMATION RIGHTS

Section 12.1 Books and Records

The Company shall maintain the following books and records at its principal office:

(a) A current list of the full name and last known business or residence address of each Member, Manager, and transferee of a Distributional Interest;

(b) A copy of the Articles of Organization and all amendments thereto;

(c) Copies of the Company's federal, state, and local income tax or information returns for the six most recent taxable years;

(d) Copies of this Agreement, including all amendments;

(e) Copies of any financial statements of the Company for the three most recent years;

(f) The Company's books and records for at least the current and past four fiscal years;

(g) Minutes of all meetings of Members; and

(h) Written consents to actions taken without a meeting.

Section 12.2 Member's Right to Information

(a) Each Member has the right, upon reasonable request and at reasonable times, to inspect and copy the books and records of the Company during ordinary business hours.

(b) The Company shall furnish to each Member within [____] days after the close of each fiscal year:

(i) A copy of the Company's federal and state income tax or information returns;

(ii) Such information as is necessary for the Member to complete such Member's federal, state, and local income tax returns; and

(iii) A financial statement showing the Company's assets, liabilities, and Members' equity.

(c) Upon a signed record given to the Company, a Member has the right to obtain at the Company's expense a copy of this Agreement.

Section 12.3 Confidentiality

(a) Each Member shall keep confidential all non-public information concerning the Company and its business that comes to such Member's knowledge in connection with such Member's Membership Interest.

(b) Confidential information may be disclosed only:

(i) With the prior written consent of the Company;

(ii) As required by law or legal process;

(iii) To the Member's attorneys, accountants, and other professional advisors who agree to maintain confidentiality; or

(iv) In connection with the enforcement of the Member's rights under this Agreement.

ARTICLE XIII - INDEMNIFICATION AND LIABILITY

Section 13.1 Indemnification

(a) Scope: The Company shall indemnify and hold harmless each Member, Manager, officer, employee, and agent of the Company (each, an "Indemnified Person") from and against any and all claims, demands, losses, damages, liabilities, costs, and expenses (including reasonable attorneys' fees and court costs) (collectively, "Losses") arising out of or incidental to any act performed or omitted by such Indemnified Person in connection with the Company's business or affairs, to the fullest extent permitted by the Act.

(b) Standard of Conduct: No indemnification shall be provided to an Indemnified Person with respect to:

(i) Any matter as to which the Indemnified Person shall have been finally adjudicated to have acted in bad faith or engaged in fraud, willful misconduct, or gross negligence;

(ii) Any matter as to which the Indemnified Person shall have been finally adjudicated to have breached the duty of loyalty to the Company;

(iii) Any transaction from which the Indemnified Person derived an improper personal benefit; or

(iv) Any breach of the Indemnified Person's duty of care that constitutes grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law as described in HRS § 428-409(c).

Section 13.2 Advancement of Expenses

The Company shall advance to any Indemnified Person the expenses (including reasonable attorneys' fees) incurred in defending any claim, action, suit, or proceeding in advance of its final disposition, upon receipt of an undertaking by or on behalf of the Indemnified Person to repay such amount if it is ultimately determined that the Indemnified Person is not entitled to be indemnified under this Article XIII.

Section 13.3 Insurance

The Company may purchase and maintain insurance on behalf of any Indemnified Person against any liability asserted against or incurred by such person in connection with the Company's business, regardless of whether the Company would have the power to indemnify such person against such liability under this Article XIII.

Section 13.4 Limitation of Liability

(a) No Personal Liability: No Member or Manager shall be personally liable for the debts, obligations, or liabilities of the Company, whether arising in contract, tort, or otherwise, solely by reason of being a Member or Manager.

(b) Limited Liability: A Member's or Manager's liability shall be limited to the Member's Capital Contribution and share of undistributed profits.

(c) Exculpation: No Member or Manager shall be liable to the Company or any other Member for any loss or damage sustained by the Company or any Member, except to the extent of any loss or damage resulting from:

(i) Fraud, willful misconduct, or gross negligence;

(ii) A breach of the duty of loyalty;

(iii) A transaction from which such person derived an improper personal benefit; or

(iv) Grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law as described in HRS § 428-409(c).

Section 13.5 Non-Exclusive Rights

The rights of indemnification and advancement of expenses provided in this Article XIII shall not be exclusive of any other rights to which any person may be entitled under any agreement, resolution of the Members, or otherwise.

ARTICLE XIV - DISSOLUTION AND WINDING UP

Section 14.1 Events Causing Dissolution

Pursuant to HRS § 428-801, the Company shall be dissolved and its affairs wound up upon the first to occur of the following:

(a) At the time or upon the occurrence of events specified in writing in this Agreement:

☐ Expiration of the specified term on: [__/__/____]

☐ [________________________________]

(b) The consent of:

☐ All Members; or

☐ Members holding at least [____]% of the Percentage Interests;

(d) On application by a Member, a judicial determination that:

(i) The economic purpose of the Company is likely to be unreasonably frustrated;

(ii) Another Member has engaged in conduct relating to the Company's business that makes it not reasonably practicable to carry on the business with that Member;

(iii) It is not otherwise reasonably practicable to carry on the Company's business in conformity with the Articles of Organization and this Agreement; or

(iv) The Company failed to purchase a dissociated Member's Distributional Interest as required by HRS § 428-701;

(e) On application by a transferee, a judicial determination that it is equitable to wind up the Company's business as provided in HRS § 428-801(5); or

(f) The administrative dissolution of the Company by the DCCA.

Section 14.2 Continuation After Dissociation

The Company shall not be dissolved solely by reason of a Member's dissociation if:

(a) At least one Member remains; and

(b) Within [____] days after the dissociation, Members owning a majority of the Percentage Interests agree in writing to continue the Company's business.

Section 14.3 Winding Up

(a) Right to Wind Up: Upon dissolution, the Members who have not wrongfully caused the dissolution, or if none, the legal representatives of the last surviving Member, shall have the right to wind up the Company's business.

(b) Winding Up Activities: The person(s) winding up the Company's affairs may:

(i) Preserve the Company's business or property as a going concern for a reasonable time;

(ii) Prosecute and defend actions and proceedings;

(iii) Settle and close the Company's business;

(iv) Dispose of and transfer the Company's property;

(v) Discharge or make provision for the Company's liabilities;

(vi) Distribute any remaining property to the Members; and

(vii) Execute and file a statement of dissolution and articles of termination with the DCCA.

Section 14.4 Order of Distributions Upon Dissolution

Upon dissolution and after payment of, or adequate provision for, all debts and liabilities of the Company, the remaining assets shall be distributed in the following order:

(a) First: To creditors, including Members who are creditors, in satisfaction of liabilities other than liabilities for distributions;

(b) Second: To Members and former Members in satisfaction of liabilities for distributions owed under HRS § 428-405 or Section 6.4;

(d) Fourth: To Members in accordance with their respective Percentage Interests.

Section 14.5 Certificate of Termination

Upon completion of the winding up, the person(s) winding up the Company's affairs shall file articles of termination with the DCCA as required by HRS § 428-805.

Section 14.6 No Liability for Return of Capital

Except as otherwise provided herein, no Member shall be personally liable for the return of any Capital Contributions of any other Member.

ARTICLE XV - HAWAII-SPECIFIC PROVISIONS

Section 15.1 Annual Reports

(a) The Company shall file an annual report with the Hawaii Department of Commerce and Consumer Affairs, Business Registration Division as required by HRS § 428-210.

(b) The annual report is due quarterly based on the anniversary of the Company's formation:

If formed January-March: Due March 31
If formed April-June: Due June 30
If formed July-September: Due September 30
If formed October-December: Due December 31

(d) Failure to file the annual report may result in administrative dissolution of the Company.

Section 15.2 Hawaii General Excise Tax

(a) GET License: The Company shall obtain and maintain a General Excise Tax (GET) license from the Hawaii Department of Taxation prior to conducting business in Hawaii. The registration fee is a one-time fee of $20.

(b) GET Rates: The Company acknowledges that Hawaii imposes a General Excise Tax on gross receipts from business activities at the following rates:

4.0% for retail, services, contracting, and most other activities
0.5% for wholesaling and manufacturing
0.15% for insurance commissions

(c) County Surcharge: In addition to the base GET rate, a county surcharge of 0.5% applies to activities taxed at the 4.0% rate in:

City and County of Honolulu (through December 31, 2030)
County of Hawaii (through December 31, 2030)
County of Kauai (through December 31, 2030)
County of Maui (through December 31, 2030)

The total combined rate for retail/services in these counties is 4.5%.

(d) Pass-On Rate: If the Company passes the GET on to customers, the maximum pass-on rate (including county surcharge) is 4.712% in counties with the 0.5% surcharge.

(e) Filing Requirements: The Company shall file GET returns as follows:

Monthly: If annual tax liability exceeds $4,000
Quarterly: If annual tax liability is $4,000 or less but more than $2,000
Semi-annually: If annual tax liability is $2,000 or less

Returns are due on the 20th of the month following the end of the reporting period. The annual reconciliation (Form G-49) is due April 20.

Section 15.3 Hawaii Income Tax

(a) The Company shall comply with all applicable Hawaii income tax requirements under HRS Chapter 235.

(b) The Members acknowledge that Hawaii does not follow all federal tax provisions and the Company may have Hawaii tax adjustments that differ from federal treatment.

Section 15.4 Registered Agent Requirements

Pursuant to HRS § 428-105, the Company shall continuously maintain in Hawaii a registered agent who has a business address in Hawaii. The registered agent may be:

(a) An individual who resides in Hawaii;

(b) A domestic corporation, limited liability company, or limited partnership; or

Section 15.5 Foreign Limited Liability Companies

If the Company conducts business in states other than Hawaii, the Company shall register as a foreign limited liability company in each such state as required by applicable law.

ARTICLE XVI - TAX MATTERS

Section 16.1 Tax Classification

The Members intend that the Company shall be classified for federal and state income tax purposes as (select one):

☐ Partnership (if the Company has two or more Members)

☐ Disregarded Entity (if the Company has one Member)

☐ S Corporation (requires filing Form 2553)

☐ C Corporation (requires filing Form 8832)

Section 16.2 Partnership Representative

(a) Designation: The following Member is designated as the "Partnership Representative" for purposes of the Internal Revenue Code (including Subchapter C of Chapter 63, as amended by the Bipartisan Budget Act of 2015):

Name: [________________________________]

Address: [________________________________]

(b) Authority: The Partnership Representative shall have the sole authority to act on behalf of the Company in any administrative or judicial proceeding with the Internal Revenue Service relating to the determination of Company items of income, gain, loss, deduction, or credit for federal income tax purposes.

(c) Push-Out Election: In the event of any adjustment to the Company's income, gain, loss, deductions, or credits by the IRS, the Partnership Representative shall, if requested by a majority of the Members, make the election under IRC Section 6226 to "push out" the adjustment to the Members.

(d) Indemnification: The Partnership Representative shall be indemnified by the Company for any actions taken in good faith in such capacity.

Section 16.3 Tax Returns

(a) The Company shall prepare or cause to be prepared all federal, state, and local income tax returns required to be filed by the Company.

(b) The Company shall furnish to each Member all information necessary for the Member to complete such Member's federal, state, and local income tax returns within [____] days after the close of each fiscal year.

Section 16.4 Tax Elections

The Members or Manager(s) may make any tax elections permitted by applicable law, including:

(a) Election to adjust the basis of Company assets upon a transfer of a Membership Interest under IRC Section 754;

(b) Election to use a particular accounting method;

(d) Any other elections the Members or Managers deem appropriate.

Section 16.5 Withholding

The Company is authorized to withhold from distributions to any Member, or with respect to allocations of income to any Member, any amounts required to be withheld under applicable federal, state, or local tax laws. Any amounts so withheld shall be treated as having been distributed to such Member.

ARTICLE XVII - MISCELLANEOUS

Section 17.1 Amendments

This Agreement may be amended or modified only by a written instrument signed by:

☐ All Members; or

☐ Members holding at least [____]% of the Percentage Interests.

No amendment shall alter a Member's obligation to make Capital Contributions or reduce a Member's Percentage Interest without the consent of such Member.

Section 17.2 Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the State of Hawaii, including the Hawaii Uniform Limited Liability Company Act, HRS Chapter 428, without regard to conflicts of law principles.

Section 17.3 Dispute Resolution

(a) Mediation: Any dispute arising out of or relating to this Agreement shall first be submitted to non-binding mediation administered by a mutually agreed-upon mediator in the State of Hawaii.

(b) Arbitration (Optional):

☐ If mediation is unsuccessful, disputes shall be resolved by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be conducted in [________________________________], Hawaii.

☐ If mediation is unsuccessful, disputes shall be resolved by litigation in the courts of the State of Hawaii.

(c) Attorneys' Fees: The prevailing party in any dispute shall be entitled to recover reasonable attorneys' fees and costs from the non-prevailing party.

Section 17.4 Jurisdiction and Venue

Each Member irrevocably submits to the exclusive jurisdiction of the state and federal courts located in the State of Hawaii for any action or proceeding arising out of or relating to this Agreement. Each Member waives any objection to venue in such courts and any objection based on forum non conveniens.

Section 17.5 Entire Agreement

This Agreement, together with the Schedules and Exhibits attached hereto, constitutes the entire agreement among the Members with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations, and discussions, whether oral or written.

Section 17.6 Severability

If any provision of this Agreement is held to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not be affected or impaired thereby.

Section 17.7 Waiver

No waiver of any breach or default shall be deemed a waiver of any subsequent breach or default of the same or similar nature. No waiver shall be effective unless in writing and signed by the waiving party.

Section 17.8 Notices

All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed given:

(a) When delivered personally;

(b) Three (3) business days after being sent by certified or registered mail, postage prepaid, return receipt requested;

(d) On the date sent by electronic mail if confirmed by the recipient.

Notices shall be sent to the addresses set forth in Schedule A or to such other address as a party may designate by notice.

Section 17.9 Headings

The headings in this Agreement are for convenience only and shall not be used to interpret or construe any provision hereof.

Section 17.10 Counterparts

This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. Electronic signatures shall be deemed original signatures for all purposes.

Section 17.11 Binding Effect

This Agreement shall be binding upon and inure to the benefit of the Members and their respective heirs, executors, administrators, legal representatives, successors, and permitted assigns.

Section 17.12 No Third-Party Beneficiaries

This Agreement is intended solely for the benefit of the Members and their permitted successors and assigns, and nothing herein shall be construed to create any rights in favor of any other person or entity.

Section 17.13 Further Assurances

Each Member agrees to execute and deliver such additional documents, instruments, and assurances as may be reasonably necessary or appropriate to carry out the purposes and intent of this Agreement.

EXECUTION

IN WITNESS WHEREOF, the undersigned have executed this Limited Liability Company Operating Agreement as of the Effective Date first written above.