Alabama LLC Operating Agreement
(2025 Guide)

Your Alabama LLC Operating Agreement serves as your company’s blueprint, outlining its governance and operational procedures. Here’s a breakdown of the key information that should be included:

1. Basic LLC Information

Your Operating Agreement will begin with fundamental details about your Limited Liability Company. Some of this information will mirror what’s listed in your Alabama LLC Certificate of Formation. (Internal Link – Verify/insert your actual URL) Essential basic information includes:

• Your LLC’s full legal name.
• The LLC’s effective date (the date it officially came into existence).
• Details of your Alabama Registered Agent (if applicable). (Internal Link – Verify/insert your actual URL)
• The stated purpose of your LLC.
• The duration of your LLC (perpetual, unless otherwise stated).
• How your LLC will be taxed (more on this below).

Related Reading: For clarity on roles, you might also find it helpful to read: Is a Registered Agent an LLC Member? (Internal Link – Verify/insert your actual URL)

2. LLC Ownership Structure

Your Operating Agreement clearly lists all LLC Members and details their respective ownership shares within the Limited Liability Company. The amount of the LLC someone owns is referred to as their “LLC Membership Interest.” This is most commonly expressed as a percentage (e.g., 5%, 50%, 100%).

Important Note on Terminology: Some individuals mistakenly use terms like “shareholders” or “shares” when referring to LLC ownership. This is incorrect. The terms “shares” and “shareholders” specifically refer to ownership in a Corporation, not an LLC.

3. Initial Capital Contributions

After your LLC is officially approved, one of your first steps should be to open an LLC bank account and deposit initial funds into it. (Internal Link – Verify/insert your actual URL)

Each of the LLC Members makes an initial capital contribution, which simply means a deposit of money or assets into the business bank account. You will list these initial capital contributions in your LLC’s Operating Agreement.

Pro Tip: If you complete your Operating Agreement before opening your LLC bank account, you can initially enter the amounts the Members plan to deposit. It’s perfectly acceptable to edit your Operating Agreement later to reflect the actual amounts once the deposits are made.

Related Article: To learn more about capital contributions, including how much you should contribute, check out: LLC Capital Contributions. (Internal Link – Verify/insert your actual URL)

Some Operating Agreements also list other company assets, such as any equipment or property the LLC owns.

4. Statement About LLC Taxation

Your Operating Agreement will specify how your LLC will be taxed. There are four common ways a Limited Liability Company can be taxed by the IRS:

• LLC taxed as a Sole Proprietorship (default for Single-Member LLCs)
• LLC taxed as a Partnership (default for Multi-Member LLCs)
• LLC taxed as an S-Corporation
• LLC taxed as a C-Corporation

Important Note for Married Couples: In some specific cases, husband and wife LLCs can choose to be taxed as a Qualified Joint Venture LLC. However, to do this, the LLC must be formed in a community property state. Alabama is NOT a community property state, therefore, your Alabama LLC cannot be taxed as a Qualified Joint Venture.

5. Voting Rights of LLC Members

The rules governing membership voting will be clearly defined within your Alabama Limited Liability Company Operating Agreement.

• For Member-managed Operating Agreements: Voting powers are typically proportionate to each LLC Member’s Membership Interest. This means a Member owning 50% of the LLC generally has 50% of the voting power.
• For Manager-managed Operating Agreements: While voting powers are still proportionate to LLC Membership Interest, the Members vote primarily to elect one or more Managers. These Managers then have the authority to make certain day-to-day decisions on behalf of the LLC without needing a direct vote from all Members. However, critical decisions, such as adding or removing an LLC Member, still usually require a vote of the Members (and the Manager typically has no say in these specific actions).