Multi-Member LLC Operating Agreement — Alabama

Multi-Member LLC Operating Agreement (Alabama)

This Multi-Member Limited Liability Company Operating Agreement (this "Agreement") is entered into and made effective as of [__/__/____] (the "Effective Date") by and among the persons listed on Schedule A (each, a "Member" and collectively, the "Members") and [________________________________], an Alabama limited liability company (the "Company").

Quick-Reference Summary

Article I — Formation

1.1 Formation. The Company was formed as an Alabama limited liability company on [__/__/____] by the filing of a Certificate of Formation with the Judge of Probate of [____________] County, Alabama, and the Secretary of State of Alabama, pursuant to Ala. Code §§ 10A-5A-2.01 and 10A-1-4.02. The Members adopt and ratify that filing.

1.2 Name. The name of the Company is "[________________________________]," which complies with Ala. Code § 10A-1-5.06, including the required designation "Limited Liability Company," "LLC," or "L.L.C."

1.3 Principal Office. The principal office of the Company is located at [________________________________].

1.4 Registered Agent and Registered Office. Pursuant to Ala. Code § 10A-1-5.31, the Company's registered agent is [________________________________], whose registered office address is [________________________________].

1.5 Duration. The Company has perpetual duration under Ala. Code § 10A-5A-1.04, unless dissolved as provided in Article XIV or under Ala. Code § 10A-5A-7.01.

1.6 Operating Agreement Authority. This Agreement is the "operating agreement" within the meaning of Ala. Code § 10A-5A-1.02(o) and § 10A-5A-1.08. To the maximum extent permitted by Chapter 5A, this Agreement governs the rights, duties, and relations among the Members, Managers, and the Company.

Article II — Purpose and Powers

2.1 Purpose. The Company is formed to engage in [________________________________] and any other lawful business or activity for which a limited liability company may be formed under Alabama law.

2.2 Powers. The Company has all powers granted to limited liability companies under Ala. Code § 10A-5A-1.05 and § 10A-1-2.11.

2.3 No Unlawful Activity. Nothing in this Agreement authorizes any business prohibited by Alabama or federal law.

Article III — Members and Membership Interests

3.1 Initial Members; Percentage Interests. The names, addresses, capital contributions, and Percentage Interests of the initial Members are set forth on Schedule A.

3.2 Transferable Interest. Pursuant to Ala. Code § 10A-5A-5.01, a Member's transferable interest is personal property and consists only of the right to receive distributions.

3.3 Limited Liability. Pursuant to Ala. Code § 10A-5A-3.01, no Member or Manager is personally liable for the Company's debts, obligations, or other liabilities solely by reason of being a Member or Manager, except as expressly provided by Alabama law or a written guaranty.

3.4 Admission of Additional Members. A new Member may be admitted only with the consent of all existing Members (Ala. Code § 10A-5A-4.01(d)) and upon execution of a joinder.

Article IV — Capital Contributions and Capital Accounts

4.1 Initial Capital Contributions. Each Member shall contribute the cash, property, or services described on Schedule A on or before the Effective Date.

4.2 Capital Accounts. A separate capital account shall be maintained for each Member in accordance with Treas. Reg. § 1.704-1(b)(2)(iv).

4.3 No Interest. No Member is entitled to interest on capital contributions.

4.4 No Withdrawal of Capital. No Member may withdraw capital except as provided in this Agreement or by unanimous written consent.

4.5 Liability for Promised Contributions. A Member's promise to contribute is enforceable under Ala. Code § 10A-5A-4.03 even if the Member is unable to perform.

Article V — Capital Calls

5.1 No Mandatory Capital Calls. No Member is obligated to make additional contributions except as provided in Section 4.5 or by separate unanimous written agreement.

5.2 Voluntary Capital Calls. Written notice shall specify the aggregate amount, each Member's pro-rata share by Percentage Interest, due date (not less than [____] days), and consequences of nonpayment.

5.3 Remedies for Failure to Fund. A Delinquent Member may be subjected to any one or more of:

(a) deemed demand loan at [____]% per annum;
(b) pro-rata dilution of Percentage Interest;
(c) forced sale at [____]% of FMV; or
(d) any other remedy at law or equity.

Article VI — Allocations and Distributions

6.1 Allocations. All items of income, gain, loss, deduction, and credit shall be allocated among the Members in proportion to their Percentage Interests, subject to Treas. Reg. § 1.704-1(b) and § 1.704-2.

6.2 Distributions. Distributions of cash and other property shall be made to the Members in proportion to their Percentage Interests, at the times and amounts determined by the Governance Body.

6.3 Tax Distributions. Unless waived by unanimous consent, the Company shall distribute, before each estimated-tax due date, an amount equal to each Member's allocated taxable income multiplied by [____]% (combined federal and Alabama).

6.4 Limitations on Distributions. No distribution shall be made if, after giving effect to it, (a) the Company would be unable to pay its debts as they become due, or (b) the Company's total assets would be less than its total liabilities (Ala. Code § 10A-5A-4.06). Members are liable for improper distributions under § 10A-5A-4.07.

6.5 Liquidating Distributions. Upon winding up under Article XIV, liquidating distributions shall be (a) first, to return positive capital-account balances, and (b) thereafter, in proportion to Percentage Interests, consistent with Ala. Code § 10A-5A-7.06.

6.6 Federal Tax Classification. Unless otherwise elected, the Company is classified as a partnership for federal income-tax purposes under Treas. Reg. § 301.7701-3.

Article VII — Management

7.1 Management Structure. The Company is (check one):

☐ Member-managed (default under Ala. Code § 10A-5A-4.07). Decisions are made by a Majority by Percentage Interest (Section 8.1), except for actions reserved to Member supermajority or unanimous consent in Section 7.3 and § 10A-5A-4.07.

☐ Manager-managed. The Certificate of Formation designates the Company as manager-managed. The initial Manager(s) is/are [________________________________]. Non-Manager Members have no agency authority by default.

7.2 Authority. Subject to Sections 7.3 and 8.2, the Governance Body may:

(a) execute contracts, deeds, leases, notes, and other instruments;
(b) open, maintain, and close financial accounts;
(c) hire, supervise, and terminate employees, contractors, and agents;
(d) acquire, hold, encumber, and dispose of property;
(e) borrow money and incur indebtedness; and
(f) institute, defend, settle, and compromise legal actions.

7.3 Major Decisions Requiring [Supermajority / Unanimous] Member Consent. The following actions require the written consent of Members holding at least [____]% of the Percentage Interests (or, where Ala. Code Chapter 5A requires, unanimous consent):

(a) amending the Certificate of Formation or this Agreement;
(b) admitting a new Member;
(c) approving any merger, conversion, sale of all or substantially all of the Company's assets, or dissolution;
(d) authorizing an act outside the ordinary course of business;
(e) incurring indebtedness in excess of $[____];
(f) changing federal tax classification or making material tax elections;
(g) creating, designating, or terminating a "protected series" under Ala. Code § 10A-5A-11.03 (if Section 15.5 applies); or
(h) appointing or removing a Manager.

7.4 Compensation. Reasonable compensation may be paid to Managers and Managing Members as approved by disinterested Members.

7.5 Removal. A Manager may be removed with or without cause by Members holding at least [____]% of the Percentage Interests.

Article VIII — Voting Rights and Member Meetings

8.1 Override to Percentage-Interest Voting. Notwithstanding Ala. Code § 10A-5A-4.07 default rules, the Members agree that all Member votes shall be cast in proportion to Percentage Interests. References to "Majority," "Supermajority," and similar thresholds refer to the specified percentage of the Percentage Interests.

8.2 Matters Requiring Unanimous Member Consent. The following matters require the unanimous consent of all Members (consistent with Ala. Code § 10A-5A-4.07 and this Agreement):

(a) amending the Certificate of Formation or this Agreement (subject to § 10A-5A-1.08);
(b) admitting a new Member; and
(c) any other matter for which the Act requires unanimous consent.

8.3 Annual Meeting. An annual meeting of the Members shall be held on [____________] of each year.

8.4 Special Meetings. A special meeting may be called by any Manager or Members holding at least [____]% of the Percentage Interests, on not less than [____] days' written notice.

8.5 Action Without Meeting. Any action may be taken by written or electronic consent signed by Members holding the percentage required to approve the action.

8.6 Quorum. Members holding at least [____]% of the Percentage Interests constitute a quorum.

8.7 Remote Participation. Permitted under the Alabama Uniform Electronic Transactions Act, Ala. Code § 8-1A-1 et seq.

Article IX — Fiduciary Duties and Standards of Conduct

9.1 Statutory Standards. Each Member of a member-managed Company and each Manager of a manager-managed Company owes the duties of loyalty and care set forth in Ala. Code § 10A-5A-4.09, and the obligation of good faith and fair dealing.

9.2 Permitted Modifications. Pursuant to Ala. Code § 10A-5A-1.08(c), the Members agree to the following modifications, none of which is manifestly unreasonable:

(a) Outside Activities. Each Member and Manager may engage in any business or investment, including those competing with the Company, except for opportunities arising directly from the use of Company resources.
(b) Self-Interested Transactions. A transaction between the Company and a Member, Manager, or Affiliate is not voidable solely by reason of the relationship if approved or ratified after disclosure by disinterested decisionmakers, or fair to the Company at the time entered into.
(c) Standards for Duty of Care. Duty of care liability is limited to grossly negligent or reckless conduct, intentional misconduct, or knowing violation of law (consistent with § 10A-5A-4.09(c)).
(d) Reliance. Each Member and Manager is entitled to rely in good faith on records and information presented by others under Ala. Code § 10A-5A-4.11.

9.3 Standards Not Subject to Modification. Nothing in this Article eliminates:

(a) the obligation of good faith and fair dealing (Ala. Code § 10A-5A-1.08(b)(5));
(b) liability for intentional misconduct or knowing violation of law; or
(c) the limited information rights of Members under Ala. Code § 10A-5A-4.10.

9.4 Indemnification. The Company shall indemnify each Member, Manager, and officer to the fullest extent permitted by Ala. Code § 10A-5A-4.08, except for conduct described in Section 9.3(b).

Article X — Transfer Restrictions, ROFR, Tag-Along, Drag-Along

10.1 General Transfer Restriction. No Member may sell, assign, pledge, encumber, or otherwise transfer all or any part of the Member's interest, except in accordance with this Article. A transferee acquires only the rights of a transferee under Ala. Code § 10A-5A-5.02 and not the rights of a Member, unless admitted under Section 3.4.

10.2 Permitted Transfers. A Member may transfer all or part of the transferable interest, without other Member consent, to (a) a revocable living trust of which the Member is settlor, (b) the Member's spouse, descendants, or a trust for the benefit of any of them, or (c) an entity wholly owned by the Member, subject in each case to a joinder.

10.3 Right of First Refusal (ROFR). A Selling Member who receives a bona fide third-party offer shall deliver a ROFR Notice to the Company and other Members. The Company has [____] days to elect to purchase; non-selling Members then have [____] additional days to elect pro rata.

10.4 Tag-Along. If Members holding more than 50% of the Percentage Interests propose to sell to a third party, the other Members may tag along pro rata within [____] days on the same terms.

10.5 Drag-Along. If Members holding at least [____]% of the Percentage Interests approve a sale of all of the membership interests or substantially all of the Company's assets to a bona fide third party, the remaining Members shall sell on the same terms.

10.6 Spousal Consent. Each married Member shall obtain spousal consent in the form attached as Schedule B.

Article XI — Buy-Sell Provisions

11.1 Triggering Events. A "Triggering Event" includes:

(a) death;
(b) Permanent Disability (Section 11.7);
(c) bankruptcy or assignment for the benefit of creditors;
(d) divorce affecting the membership interest;
(e) attempted transfer in violation of Article X;
(f) dissociation under Ala. Code § 10A-5A-6.01 or § 10A-5A-6.02; or
(g) voluntary withdrawal.

11.2 Company First Right; Other Members Second. Upon a Triggering Event, the Company has the option for [____] days to purchase the affected Member's interest; any unexercised portion is offered to the non-affected Members pro rata for [____] additional days.

11.3 Purchase Price. ☐ Fair market value (Section 11.5); ☐ book value; ☐ [____ × trailing-12-month EBITDA] less debt; or ☐ most-recent value agreed at the annual meeting.

11.4 Payment Terms. [____]% in cash at closing; balance by [____]-year promissory note at [____]% per annum.

11.5 Appraisal Procedure. Each side selects an appraiser; if values differ by ≤10%, the average controls; otherwise the two appraisers select a third whose appraisal controls.

11.6 No Statutory Mandatory Buy-Out. Alabama has NOT adopted the RULLCA-style mandatory buyout on dissociation. Dissociation is a Triggering Event under Section 11.1(f), giving the Company and other Members the OPTION (not the obligation) to purchase under this Article XI.

11.7 Permanent Disability Defined. "Permanent Disability" means a Member's inability, by reason of physical or mental impairment, to perform customary services for [____] consecutive days or [____] days in any 12-month period, as determined by a physician selected by the Company.

Article XII — Charging Order (Ala. Code § 10A-5A-5.03)

12.1 Exclusive Remedy; No Foreclosure. Pursuant to Ala. Code § 10A-5A-5.03(f), a charging order is the EXCLUSIVE remedy by which a judgment creditor of a Member or transferee may satisfy a judgment out of the judgment debtor's transferable interest in the Company, AND the judgment creditor SHALL HAVE NO RIGHT TO FORECLOSE upon the charging order, the charging order lien, or the transferable interest.

12.2 No Equitable Remedies; No Account or Inquiry. Under § 10A-5A-5.03(f), the judgment creditor has no right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property of the Company. Court orders for actions or requests for accounts and inquiries are NOT available to the judgment creditor and may not be ordered by a court.

12.3 Member Retains Rights. Under § 10A-5A-5.03(d), the judgment debtor that is a Member RETAINS the rights of a Member and remains subject to all duties and obligations of a Member.

12.4 Limited Effect of Charging Order. A charging order constitutes only a lien on the judgment debtor's transferable interest and entitles the creditor only to distributions actually paid (§ 10A-5A-5.03(a)).

12.5 No Information Rights. A charging-order holder has no inspection or information rights and is not entitled to access the books or records of the Company under § 10A-5A-4.10.

12.6 No Dissolution. A charging order is not a dissolution event.

Article XIII — Deadlock and Dispute Resolution

13.1 Deadlock Defined. A "Deadlock" exists if (a) the Members or Managers fail to reach the required vote on a Major Decision for [____] consecutive days, or (b) any Member meeting fails to achieve a quorum twice in succession.

13.2 Mediation. Before pursuing remedies in Section 13.3 or 13.4, the Members shall participate in good-faith mediation administered by [☐ JAMS / ☐ AAA / ☐ a mediator in Alabama] for at least one session.

13.3 Buy-Sell Election (Optional). If Deadlock continues for [____] days after mediation, any Member may deliver an Offer Notice specifying a price per 1% Percentage Interest. The receiving Members must elect within [____] days to either sell to the Initiating Member or buy out the Initiating Member at the stated price.

13.4 Judicial Dissolution. Subject to Ala. Code § 10A-5A-7.01(5), a Member may petition for judicial dissolution on the grounds that it is not reasonably practicable to carry on the Company's business in conformity with the Certificate of Formation and this Agreement, or that the Managers or controlling Members have engaged in conduct that is illegal or fraudulent.

13.5 Governing Law. This Agreement is governed by Alabama law without regard to conflict-of-laws principles.

13.6 Venue. Subject to Section 13.7, exclusive venue lies in the Circuit Court for [____________] County, Alabama, or the United States District Court for the [Northern / Middle / Southern] District of Alabama.

13.7 Arbitration (Optional). ☐ Any dispute (other than petitions for injunctive relief or judicial dissolution) shall be resolved by binding arbitration administered by [☐ JAMS / ☐ AAA] in [____________], Alabama, before [☐ one / ☐ three] arbitrator(s), under the Federal Arbitration Act and the Alabama Arbitration Code, Ala. Code § 6-6-1 et seq.

Article XIV — Dissolution and Winding Up

14.1 Events Causing Dissolution. The Company is dissolved on the first to occur of (Ala. Code § 10A-5A-7.01):

(a) an event specified in this Agreement;
(b) consent of Members holding at least [____]% of the Percentage Interests;
(c) the passage of 90 consecutive days during which the Company has no members;
(d) judicial dissolution under § 10A-5A-7.01(5); or
(e) administrative dissolution by the Alabama Secretary of State.

14.2 Winding Up. Upon dissolution, the Company shall wind up its affairs and apply proceeds in the order required by Ala. Code § 10A-5A-7.06:

(a) creditors (including Members who are creditors);
(b) reasonable reserves; and
(c) Members in accordance with Section 6.5.

14.3 Statement of Dissolution. Upon completion of winding up, the Company shall file a Statement of Dissolution with the Alabama Secretary of State under Ala. Code § 10A-1-9.21.

Article XV — State-Specific Provisions

15.1 Business Privilege Tax. The Company shall file annually with the Alabama Department of Revenue Form PPT (pass-through entities) or Form CPT (corporate-taxed entities), as applicable, under Ala. Code § 40-14A-1 et seq. If the computed tax is $100 or less, no return is required (Act 2022-252, effective for tax years beginning after December 31, 2023). Initial Business Privilege Tax Return (Form BPT-IN) is due within two and one-half months after formation.

15.2 Probate-Court Filing. The Members acknowledge that under Ala. Code § 10A-1-4.02, the Certificate of Formation is filed first with the Judge of Probate of the county in which the Company's initial registered office is located, who transmits the filing to the Secretary of State.

15.3 Alabama Income Tax Composite Return. The Company shall file Form PTE-C (Composite Return) on behalf of nonresident Members under Ala. Code § 40-18-176, unless an individual nonresident Member has filed Form NRA (Nonresident Agreement).

15.4 Electing Pass-Through Entity Tax. The Members shall consider annually whether to make the Electing Pass-Through Entity election under Ala. Code § 40-18-24.4 (Form EPT). The Governance Body is authorized to make or rescind the election as advisable.

15.5 Series LLC (If Applicable). ☐ The Company is organized as a "series limited liability company" under Ala. Code §§ 10A-5A-11.01 to 11.10. Each "protected series" listed on Schedule C is a separate liability-shielded series, and the assets of each protected series are not available to satisfy the obligations of (a) the Company generally or (b) any other protected series, provided that:

(a) the Certificate of Formation contains the protected-series statement required by Ala. Code § 10A-5A-11.04;
(b) each protected series maintains separate records that account for its assets in a manner so that the assets can be reasonably identified by reference to the records, with assignment by category permitted;
(c) the Company gives constructive notice of the existence of one or more protected series by reflecting the same in the Certificate of Formation; and
(d) each protected series operates under a name that includes the Company's name and identifies the protected series (e.g., "[Company Name] — Series A").

15.6 Strong Charging-Order Protection. The Members acknowledge that Alabama is one of the strongest charging-order-only jurisdictions, with no foreclosure remedy under Ala. Code § 10A-5A-5.03(f). This Agreement is intended to maximize the asset-protection benefits of Alabama law.

Article XVI — General Provisions

16.1 Notices. All notices shall be in writing and delivered by hand, certified mail, overnight courier, or email (with confirmation) to the addresses on Schedule A.

16.2 Amendments. This Agreement may be amended only by a writing signed by all Members.

16.3 Entire Agreement. This Agreement, together with the Certificate of Formation and the schedules and exhibits, constitutes the entire agreement among the Members and supersedes all prior agreements, written or oral.

16.4 Severability. If any provision is held invalid or unenforceable, it shall be limited or construed so as to be valid; remaining provisions remain in full force.

16.5 Counterparts; Electronic Signatures. This Agreement may be executed in counterparts, including by electronic signature under the Alabama Uniform Electronic Transactions Act, Ala. Code § 8-1A-1 et seq.

16.6 No Third-Party Beneficiaries. Except for indemnified persons under Section 9.4, this Agreement creates no rights in any person other than the Members and the Company.

16.7 Construction. Captions are for convenience only.

Signature Block

THE COMPANY

[________________________________], an Alabama limited liability company

By: [________________________________]
Name: [________________________________]
Title: [☐ Managing Member / ☐ Manager]
Date: [__/__/____]

MEMBERS

Member 1: [________________________________]
Signature: [________________________________]
Date: [__/__/____]

Member 2: [________________________________]
Signature: [________________________________]
Date: [__/__/____]

Member 3: [________________________________]
Signature: [________________________________]
Date: [__/__/____]

SPOUSAL CONSENT (See Schedule B)

Pre-Execution Checklist

☐ Certificate of Formation filed with Judge of Probate AND transmitted to Alabama SOS (Ala. Code § 10A-1-4.02)
☐ Series LLC election (if any) properly designated in Certificate (Section 15.5)
☐ Schedule C completed for any protected series
☐ Initial Business Privilege Tax Return (Form BPT-IN) calendared (due within 2.5 months of formation)
☐ EIN obtained from IRS
☐ AL Department of Revenue registration (Form PPT/CPT, PTE-C, EPT)
☐ Registered agent identified with Alabama street address
☐ Schedule A completed
☐ Schedule B (Spousal Consent) signed
☐ Buy-sell valuation method selected (Section 11.3)
☐ Major-Decision threshold completed (Section 7.3)
☐ Electing PTE tax election analyzed (Section 15.4)
☐ Nonresident-Member composite return or NRA agreements obtained (Section 15.3)
☐ Operating Agreement reviewed by Alabama-licensed counsel
☐ D&O / E&O / general liability insurance obtained

Sources and References

• Alabama Limited Liability Company Law of 2014, Title 10A, Chapter 5A: https://law.justia.com/codes/alabama/title-10a/chapter-5a/
• Ala. Code § 10A-5A-5.03 (Charging Order): https://law.justia.com/codes/alabama/title-10a/chapter-5a/article-5/section-10a-5a-5-03/
• How to Use Charging Orders in Alabama (Christian & Small): https://csattorneys.com/2021/07/27/charge-it-please-how-to-use-charging-orders-to-enforce-judgments-in-alabama/
• Alabama Business Privilege Tax (AL Department of Revenue): https://www.revenue.alabama.gov/individual-corporate/alabama-business-privilege-tax-and-corporate-share-tax/
• Alabama Secretary of State Business Entities: https://www.sos.alabama.gov/business-entities
• AL Code § 10A-5A-4.11 (Reliance on reports and information): https://law.justia.com/codes/alabama/title-10a/chapter-5a/article-4/section-10a-5a-4-11/