Multi-Member LLC Operating Agreement — Arkansas

Multi-Member LLC Operating Agreement (Arkansas)

Quick-Reference Summary

Parties and Effective Date

This Multi-Member Limited Liability Company Operating Agreement (this "Agreement") is entered into and effective as of [__/__/____] (the "Effective Date") by and among the persons identified in Article III below (each, a "Member" and collectively, the "Members"), as the members of [________________________________], an Arkansas limited liability company (the "Company").

Article I — Formation

1.1 Formation

The Company was formed as an Arkansas limited liability company by the filing of a Certificate of Organization with the Arkansas Secretary of State pursuant to Ark. Code Ann. § 4-38-201 on [__/__/____].

1.2 Name

The name of the Company is [________________________________].

1.3 Principal Office

The Company's principal office is [________________________________].

1.4 Registered Agent

The Company's registered agent in Arkansas is [________________________________], with an Arkansas business address at [________________________________].

1.5 Duration

The Company shall have perpetual duration unless dissolved under this Agreement or Ark. Code Ann. § 4-38-701.

1.6 Governing Law

This Agreement and the internal affairs of the Company are governed by the laws of the State of Arkansas, including the Arkansas Uniform Limited Liability Company Act, Ark. Code Ann. § 4-38-101 et seq., without regard to conflicts-of-laws principles.

Article II — Purpose and Powers

2.1 Purpose

The Company is organized to engage in any lawful purpose, business, or activity permitted under Ark. Code Ann. § 4-38-108, including: [________________________________].

2.2 Powers

The Company has the powers granted under Ark. Code Ann. § 4-38-109.

Article III — Members and Membership Interests

3.1 Initial Members

The initial Members, their initial capital contributions, and their Percentage Interests are:

Total Percentage Interests must equal 100%.

3.2 Nature of Interest

Each Member's interest consists of (a) a transferable economic interest under Ark. Code Ann. § 4-38-502 and (b) governance rights as a Member.

3.3 No Personal Liability

Consistent with Ark. Code Ann. § 4-38-304, no Member or Manager is individually liable for the debts, obligations, or liabilities of the Company solely by reason of acting as such.

3.4 Separateness

The Members shall cause the Company to maintain separate accounts, books, and identity, and shall not commingle assets.

3.5 Admission of New Members

A new Member may be admitted only upon the affirmative vote or written consent of Members holding at least [______]% of Percentage Interests, execution of a written joinder, and any required capital contribution.

Article IV — Capital Contributions and Capital Accounts

4.1 Initial Contributions

Each Member has contributed the amount set forth in Article III, § 3.1.

4.2 Capital Accounts

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

4.3 No Interest on Capital; No Right to Return

No Member is entitled to interest on capital or to demand a return of contributions except as provided in this Agreement.

4.4 Form of Contribution

Contributions may consist of cash, property, services rendered, or a promise to contribute (Ark. Code Ann. § 4-38-402).

Article V — Capital Calls

5.1 Voluntary Additional Contributions

A Member may make additional contributions only as agreed in writing.

5.2 Mandatory Capital Calls (Optional)

☐ The Manager (or, in a member-managed Company, Members holding at least [______]% of Percentage Interests) may issue a written capital call ("Capital Call") to all Members pro rata, requiring funding within [____] days for: [________________________________].

5.3 Default Remedies

If a Member fails to fund ("Defaulting Member"), the non-defaulting Members may elect:

(a) Loan Treatment. Advance the deficiency as a loan at [____]% per annum (not exceeding the maximum lawful Arkansas rate; see Ark. Const. art. XIX, § 13);
(b) Dilution. Reduce the Defaulting Member's Percentage Interest using a commercially reasonable formula; or
(c) Forced Buy-out under Article XI.

Article VI — Allocations and Distributions

6.1 Allocations

Items of income, gain, loss, deduction, and credit shall be allocated to the Members in proportion to their Percentage Interests, subject to required regulatory allocations.

6.2 Distributions — Modification of § 4-38-404 Default

Pursuant to Ark. Code Ann. § 4-38-105(b) and overriding the equal-share default of § 4-38-404, distributions shall be made to the Members in proportion to their Percentage Interests at such times as the Manager (or member-managers) determine.

6.3 Tax Distributions

☐ The Company shall, to the extent of available cash and subject to § 4-38-405, distribute to each Member quarterly an amount equal to such Member's allocable share of taxable income multiplied by the highest combined federal/Arkansas marginal individual tax rate then in effect.

6.4 Limitations on Distributions

No distribution shall be made if, after giving effect to it, the Company would not be able to pay its debts as they become due in the ordinary course of business or the Company's total assets would be less than the sum of total liabilities plus required preferential amounts (Ark. Code Ann. § 4-38-405).

Article VII — Management

7.1 Member-Managed (Default)

The Company is member-managed under Ark. Code Ann. § 4-38-407(b). Each Member has equal rights in management except as modified by this Agreement.

7.2 Manager-Managed (Optional Election)

☐ The Company is instead designated manager-managed. The initial Manager(s) is/are: [________________________________].

7.3 Officers (Optional)

The Members (or Manager) may appoint officers and define their authority.

7.4 Major Decisions — Member Consent Required

The affirmative vote or written consent of Members holding at least [______]% of Percentage Interests (the "Supermajority") is required for:

(a) Amendment of the Certificate of Organization or this Agreement;
(b) Sale, lease, exchange, or other disposition of all or substantially all assets;
(c) Merger, conversion, interest exchange, or domestication under Ark. Code Ann. §§ 4-38-1021 et seq.;
(d) Admission of a new Member;
(e) Voluntary dissolution;
(f) Incurrence of debt exceeding $[____________];
(g) Distributions in kind;
(h) Engagement outside § 2.1's purpose;
(i) Voluntary bankruptcy filing;
(j) Confession of judgment exceeding $[____________].

Article VIII — Voting Rights and Member Meetings

8.1 Voting Power

Except as provided in § 7.4 and overriding the per-capita default of § 4-38-407, each Member votes in proportion to Percentage Interest.

8.2 Meetings

Regular meetings of the Members may be held [annually / quarterly]. Special meetings may be called by any Member holding at least [____]% of Percentage Interests or by any Manager, on at least [____] days' written notice.

8.3 Quorum

Members holding at least a majority of Percentage Interests, present in person or by remote communication, constitute a quorum.

8.4 Action Without a Meeting

Action may be taken by written consent of Members holding the required percentage.

8.5 Proxies; Remote Participation

A Member may vote by written proxy. Participation by means of simultaneous communication constitutes presence.

Article IX — Fiduciary Duties and Standards of Conduct

9.1 General Standard (Ark. Code Ann. § 4-38-409)

Each Member (in a member-managed Company) and each Manager (in a manager-managed Company) owes:

(a) Duty of Loyalty under § 4-38-409(b), including the duty (i) to account for property, profit, or benefit derived from Company activity; (ii) to refrain from dealing with the Company as one with an adverse interest; and (iii) to refrain from competing with the Company before dissolution.

(b) Duty of Care under § 4-38-409(c), to refrain from engaging in grossly negligent or reckless conduct, willful or intentional misconduct, or knowing violation of law.

(c) Contractual Obligation of Good Faith and Fair Dealing under § 4-38-409(d).

9.2 Permitted Modifications under Ark. Code Ann. § 4-38-105(e)–(f)

Pursuant to § 4-38-105(e)(5)–(7), the operating agreement MAY NOT alter or eliminate the duty of loyalty or the duty of care (except as provided in subsection (f)), eliminate the contractual obligation of good faith and fair dealing, or relieve a person of liability for conduct involving bad faith, willful or intentional misconduct, or knowing violation of law. Subject to those limits:

(a) Outside Activities Specifically Authorized. Pursuant to § 4-38-105(f)(1)(A) and § 4-38-409(f), and after full disclosure of all material facts, the Members authorize and ratify the following specific outside activities, including any that would otherwise compete with the Company: [________________________________].

(b) Reasonable Standards. Pursuant to § 4-38-105(e)(6), the operating agreement may prescribe standards by which the performance of the obligation of good faith and fair dealing is measured, if not manifestly unreasonable. The Members agree that the following standards apply: [________________________________].

(c) Related-Party Transactions. A transaction between the Company and a Member, Manager, or affiliate is not voidable solely by reason of such relationship if approved by Members holding at least [______]% of disinterested Percentage Interests after disclosure of material facts (consistent with § 4-38-105(f)(1)(A)).

(d) Limitation of Liability. To the maximum extent permitted by Arkansas law (and except as restricted by § 4-38-105(e)(7)), no Member, Manager, or officer is liable for acts or omissions other than those constituting bad faith, willful or intentional misconduct, or knowing violation of law.

9.3 Manifest Unreasonableness

The Members agree that the standards adopted in this Article are not manifestly unreasonable in light of the Company's business and the Members' expectations (§ 4-38-105(g)).

9.4 Indemnification

The Company shall indemnify and advance expenses to each Member, Manager, and officer to the fullest extent permitted by Ark. Code Ann. § 4-38-408, except where conduct involves bad faith, willful or intentional misconduct, or knowing violation of law.

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

10.1 General Restriction on Transfer

No Member shall sell, assign, pledge, encumber, or otherwise transfer all or any part of the Member's interest (a "Transfer") except as expressly permitted by this Article and Ark. Code Ann. § 4-38-502. Any purported Transfer in violation of this Article is void.

10.2 Transferable Interest vs. Membership

A Transfer of a transferable interest does not entitle the transferee to participate in management or to become a Member; the transferee receives only the right to distributions until and unless admitted as a Member under § 3.5.

10.3 Permitted Transfers

The following Transfers are permitted without other Members' consent (subject to written joinder): (a) Transfers to spouse, descendants, or a revocable trust for the benefit thereof; (b) Transfers among existing Members in proportion to existing Percentage Interests.

10.4 Right of First Refusal (ROFR)

If a Member receives a bona fide written offer ("Offer"), the Member ("Selling Member") shall first offer the interest to the other Members on the same terms by written notice. The other Members have [____] days to elect, pro rata, to purchase. If not entirely purchased, the Selling Member may complete the sale to the third party on terms no more favorable than the Offer within [____] days.

10.5 Tag-Along Rights

If Members holding more than [____]% propose a third-party sale, each other Member may elect within [____] days to include pro rata share on the same terms.

10.6 Drag-Along Rights

If Members holding at least [______]% approve a bona fide sale of all interests, those Members may require the remaining Members to sell on the same terms.

Article XI — Buy-Sell Provisions

11.1 Triggering Events

The Company (or, at the Company's election, the other Members pro rata) shall have the option to purchase a Member's entire interest upon: death, permanent disability, bankruptcy, divorce in which the Member's interest is sought to be awarded to a non-Member spouse, expulsion under § 11.4, attempted involuntary Transfer, or service of a charging order under § 4-38-503 that remains undischarged for [____] days.

11.2 Valuation

Fair market value shall be determined by:

(a) ☐ Agreed Value. Members shall annually set a per-unit value.
(b) ☐ Appraisal. By a qualified appraiser; if no agreement within [____] days, two appraisers select a third whose determination controls.
(c) ☐ Formula. [________________________________].

11.3 Payment Terms

Purchase price shall be paid (a) [____]% in cash at closing; and (b) the balance over [____] years by promissory note bearing interest at the AFR under IRC § 1274(d) (and not exceeding the Arkansas usury limit under Ark. Const. art. XIX, § 13), with equal periodic payments, secured by the purchased interest.

11.4 Expulsion of a Member

A Member may be expelled for cause by Supermajority vote (excluding the expelled Member), followed by mandatory purchase under this Article.

11.5 Insurance Funding (Optional)

☐ The Company shall maintain life and disability insurance on each Member sufficient to fund the Company's purchase obligation.

Article XII — Charging Order (Ark. Code Ann. § 4-38-503)

12.1 Charging Order

Pursuant to Ark. Code Ann. § 4-38-503(a), on application by a judgment creditor of a Member or transferee, a court may charge the transferable interest with payment of the unsatisfied amount of the judgment. A charging order constitutes a lien on the judgment debtor's transferable interest and requires the Company to pay over to the charging-order holder any distribution that would otherwise be paid to the judgment debtor.

12.2 Effect of Charging Order

The judgment creditor has only the rights of a transferee under § 4-38-502 and receives no voting, management, inspection, or other governance rights.

12.3 Foreclosure Risk — Arkansas Is NOT a Charging-Order-Only Jurisdiction

Members acknowledge that, unlike Nevada and Kansas, Arkansas law permits foreclosure of a charged transferable interest in two circumstances:

(a) Bad-Faith / Intentional Misconduct (§ 4-38-503(b)). On a showing to the court's satisfaction that one or more Members have engaged in bad faith or intentional misconduct in managing the Company's operations or finances so as to reduce or eliminate distributions to the judgment debtor, and thereby effectively defeat the charging order, the court may foreclose the lien and order the sale of the judgment debtor's transferable interest. The purchaser obtains only a transferable interest, does not become a Member, and is subject to § 4-38-502.

(b) Sole-Member LLC (§ 4-38-503(c)). On a showing that distributions under a charging order will not pay the judgment debt within a reasonable time, the court may foreclose the lien and order the sale of the transferable interest of the sole member of a single-member LLC.

To preserve charging-order protection in this multi-member Company, the Members agree to (i) maintain bona-fide multi-member operation; (ii) document all distribution decisions; and (iii) avoid any conduct that could be characterized as bad-faith manipulation of distributions to harm a charging-order holder.

12.4 Redemption and Substitution

Before foreclosure under § 4-38-503(b), the affected Member may extinguish the charging order by satisfying the judgment, and the Company or non-affected Members may pay the full amount due and succeed to the rights of the charging-order holder.

12.5 Exemption Laws Preserved

This Article does not deprive any Member or transferee of any exemption applicable to the Member's transferable interest.

Article XIII — Deadlock and Dispute Resolution

13.1 Definition of Deadlock

A "Deadlock" exists when the Members cannot reach the required vote on any Major Decision or matter materially impairing Company operations, despite at least two good-faith meetings within [____] days.

13.2 Mandatory Negotiation

Upon Deadlock, senior representatives shall meet within [____] days for good-faith negotiation.

13.3 Mediation

If unresolved within [____] days, the dispute shall be submitted to non-binding mediation in [____________] County, Arkansas, administered by JAMS or AAA.

13.4 Binding Arbitration

If unresolved within [____] days after mediation, the dispute shall be resolved by binding arbitration under the AAA Commercial Arbitration Rules and the Arkansas Arbitration Act (Ark. Code Ann. § 16-108-201 et seq.), before a single arbitrator, in [____________] County, Arkansas. Judgment on the award may be entered in any court of competent jurisdiction.

13.5 Buy-Sell Election ("Texas Shoot-Out")

☐ As an alternative upon Deadlock persisting more than [____] days, any Member may serve a written notice offering to buy or sell at a stated price, with recipients having [____] days to elect.

13.6 Judicial Dissolution as Last Resort

Application for judicial dissolution under Ark. Code Ann. § 4-38-701(a)(4) (illegality, "not reasonably practicable," or oppressive/illegal/fraudulent conduct by those in control) is a last-resort remedy. Note that the operating agreement may NOT vary the causes of dissolution specified in § 4-38-701(a)(4) (§ 4-38-105(e)(9)).

Article XIV — Dissolution and Winding Up

14.1 Events Causing Dissolution

The Company shall be dissolved upon the first to occur of (Ark. Code Ann. § 4-38-701):
(a) An event specified in the Certificate of Organization or this Agreement;
(b) The written consent of all Members (or such lesser percentage as agreed — here, [______]%);
(c) The passage of 90 days during which the Company has no Members (with limited cure right);
(d) Entry of a judicial decree under § 4-38-701(a)(4); or
(e) Administrative dissolution under § 4-38-708.

14.2 Winding Up

Upon dissolution, the Company shall wind up under Ark. Code Ann. § 4-38-702.

14.3 Distribution of Assets

Assets shall be distributed: (i) to creditors (including Member-creditors); (ii) to Members and former Members in satisfaction of liabilities for unpaid distributions; (iii) to Members in proportion to their Percentage Interests.

14.4 Statement of Termination

After winding up, a Statement of Termination shall be filed with the Arkansas Secretary of State.

14.5 Continuation After Dissociation

The dissociation of any Member shall not dissolve the Company; the Company shall continue with the remaining Members.

Article XV — State-Specific Provisions

15.1 Annual Franchise Tax Report

The Company shall file the annual franchise tax report required under the Arkansas Corporate Franchise Tax Act of 1979, Ark. Code Ann. § 26-54-101 et seq., with the Arkansas Secretary of State Business and Commercial Services Division. The minimum LLC franchise tax is $150, due by May 1 of each year. Failure to pay results in penalties, interest, and ultimately revocation of authority to do business (Ark. Code Ann. § 26-54-114).

15.2 Series LLC — NOT PERMITTED

The Members acknowledge that Arkansas DOES NOT authorize series limited liability companies. The Company shall not purport to establish protected or registered series under Arkansas law. If a series structure is desired, the Members shall organize separate Arkansas LLCs or form the principal entity in a state that authorizes series LLCs (e.g., Delaware, Nevada, Texas, Kansas, Iowa).

15.3 Confidentiality of Member Information

Pursuant to Ark. Code Ann. § 4-38-1106, all Member information contained in the annual report or annual franchise tax report is confidential and not available for public inspection except (i) the Company's name and address; (ii) the registered agent; and (iii) the state of registration.

15.4 Information Rights

Each Member has the inspection and information rights provided under Ark. Code Ann. § 4-38-410, subject to reasonable confidentiality restrictions (which under § 4-38-105(e)(8) may not be unreasonably restrictive).

15.5 Tax Classification

The Company is intended to be classified as a partnership for federal income-tax purposes under Treas. Reg. § 301.7701-3 unless an S-Corp election (IRS Form 2553) or other election is made by the Supermajority.

15.6 Arkansas Pass-Through Entity Tax (PTE) Election (Optional)

☐ The Company may elect to be taxed at the entity level under the Arkansas Elective Pass-Through Entity Tax under Ark. Code Ann. § 26-65-101 et seq. (SALT-cap workaround), if the Members so determine.

15.7 Partnership Representative

☐ The "Partnership Representative" under IRC § 6223 is [________________________________], with authority to act on behalf of the Company in IRS audits and proceedings.

Article XVI — General Provisions

16.1 Amendment

This Agreement may be amended only by a writing signed by Members holding at least [______]% of Percentage Interests, except that any amendment that disproportionately and adversely affects a Member requires that Member's written consent, and any amendment in violation of the non-waivable provisions of Ark. Code Ann. § 4-38-105(e) is void to the extent of the violation.

16.2 Severability

If any provision is held invalid, the remaining provisions shall continue in full force and effect.

16.3 Entire Agreement

This Agreement, together with the Certificate of Organization, constitutes the entire agreement of the Members.

16.4 Notices

Notices shall be in writing and sent to the addresses in Article III, § 3.1.

16.5 Counterparts; Electronic Signature

This Agreement may be executed in counterparts and by electronic signature under the Arkansas Uniform Electronic Transactions Act, Ark. Code Ann. § 25-32-101 et seq.

16.6 Governing Law; Venue

Arkansas law governs. Venue for any non-arbitrable dispute is the Circuit Court of [____________] County, Arkansas.

16.7 Spousal Consent

Each Member who is married shall cause the Member's spouse to execute the Spousal Consent attached as Exhibit A.

Signature Block

THE COMPANY:

[________________________________], an Arkansas limited liability company

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

THE MEMBERS:

____________________________________________________
[________________________________], Member
Date: [__/__/____]

____________________________________________________
[________________________________], Member
Date: [__/__/____]

____________________________________________________
[________________________________], Member
Date: [__/__/____]

____________________________________________________
[________________________________], Member
Date: [__/__/____]

Pre-Execution Checklist

☐ LLC name distinguishable; AR SOS name search completed
☐ Certificate of Organization filed with AR Secretary of State (§ 4-38-201)
☐ Registered agent confirmed
☐ EIN obtained from the IRS
☐ Each Member's initial capital contribution actually transferred to a Company bank account
☐ Separate Company bank account opened (NO commingling)
☐ Operating Agreement signed by all Members and stored with Company records
☐ Spousal Consents executed by all married Members
☐ Calendar reminder set for annual franchise tax report (due May 1; minimum $150)
☐ S-Corp election (Form 2553) evaluated
☐ Arkansas PTE election evaluated (Article XV, § 15.6)
☐ Partnership Representative designated (Article XV, § 15.7)
☐ Federal Beneficial Ownership Information (BOI) reporting evaluated under applicable federal law
☐ Buy-sell life/disability insurance considered and bound if elected
☐ Annual valuation procedure under § 11.2 calendared
☐ Outside-activity authorizations (§ 9.2(a)) drafted with specificity

Sources and References

• Arkansas Uniform Limited Liability Company Act (Ark. Code Ann. § 4-38-101 et seq.): https://law.justia.com/codes/arkansas/title-4/subtitle-3/chapter-38/
• Ark. Code Ann. § 4-38-503 (Charging order): https://law.justia.com/codes/arkansas/title-4/subtitle-3/chapter-38/subchapter-5/section-4-38-503/
• Ark. Code Ann. § 4-38-105 (Operating agreement scope): https://law.justia.com/codes/arkansas/title-4/subtitle-3/chapter-38/subchapter-1/section-4-38-105/
• Ark. Code Ann. § 4-38-409 (Standards of conduct): https://law.justia.com/codes/arkansas/title-4/subtitle-3/chapter-38/
• Arkansas Secretary of State — Business and Commercial Services: https://www.sos.arkansas.gov/business-commercial-services-bcs/
• Arkansas Franchise Tax (Ark. Code Ann. § 26-54-101 et seq.): https://www.sos.arkansas.gov/business-commercial-services-bcs/franchise-tax-report-forms/
• IRS Form 8832 (Entity Classification Election): https://www.irs.gov/forms-pubs/about-form-8832
• IRS Form 2553 (S Corporation Election): https://www.irs.gov/forms-pubs/about-form-2553