Introduction:
The concept is to create a legal vehicle for simple, but scalable real estate investment partnerships, which don't require securitization and all the expenses therein. It does require special work on the Operating Agreement which governs the partnership.
This is a general, example structure for a Multi-Member, Manager-Managed LLC Operating Agreement tailored for a real estate investment property in the State of Hawaii.
Operating Agreement to ensure compliance with the Hawaii Revised Statutes, Chapter 428 (The Hawaii Uniform Limited Liability Company Act) and all applicable federal laws (especially securities and tax).
This uses LLC law to create a partnership for holding real estate.
This is version one.
🌺 OPERATING AGREEMENT of [LLC NAME],
LLCA Hawaii Limited Liability Company
Effective Date: [Date of Execution]
ARTICLE I. ORGANIZATION AND GOVERNING LAW
Section 1.1. Formation and Name
The undersigned Members hereby form a Limited Liability Company ("Company") under the name [LLC NAME], LLC, pursuant to the provisions of the Hawaii Revised Statutes, Chapter 428 (the "Act").
The rights and obligations of the Members and the Company shall be governed by the Act, except as otherwise expressly provided in this Agreement.
Section 1.2. Purpose
The purpose of the Company shall be to acquire, own, develop, lease, operate, mortgage, sell, and otherwise manage real estate located at [Specific Property Address in Hawaii] (the "Property"), and to engage in any and all other lawful businesses or activities for which a limited liability company may be organized under the Act.
Section 1.3. Principal Office and Agent
The Company's principal office shall be located at [Company's Principal Mailing Address in Hawaii].
The Company's initial Registered Agent in Hawaii is [Registered Agent Name], located at [Registered Agent Street Address in Hawaii].
Section 1.4. Term
The term of the Company shall commence upon the filing of the Articles of Organization with the Hawaii Department of Commerce and Consumer Affairs (DCCA) and shall be perpetual, unless sooner dissolved in accordance with this Agreement.
ARTICLE II. MEMBERSHIP INTERESTS AND CAPITAL
Section 2.1. Membership Units
The total ownership of the Company shall be divided into [Total Number] Membership Units ("Units"), representing 100% of the Membership Interests. Each Unit shall carry proportional rights to profit/loss, distributions, and voting, except as otherwise defined herein.
Section 2.2. Initial Members and Contributions
The name, address, initial capital contribution, and percentage ownership of each initial Member are set forth in Schedule A attached hereto.
Section 2.3. Admission of New Members
New Members may be admitted to the Company upon:Unanimous Written Consent of the Managers or Members (as defined in Article IV).
The execution of a Subscription Agreement and a written Joinder Agreement to this Operating Agreement by the incoming Member.
The payment of the required capital contribution as determined by the Manager.
The amendment of Schedule A to reflect the new Unit ownership and ownership percentages, which shall dilute the existing Members proportionately.
Section 2.4. Additional Capital Contributions
No Member shall be required to make any additional capital contributions without the Unanimous Written Consent of all Members.
If additional contributions are voluntarily requested and made, the Units and ownership percentages shall be adjusted proportionally and documented in an updated Schedule
A.ARTICLE III. ALLOCATIONS AND DISTRIBUTIONS
Section 3.1. Allocations of Profits and Losses
The Company's Net Profits and Net Losses for financial accounting and tax purposes shall be allocated to the Members in proportion to their respective Percentage Interests (based on Units owned) as reflected in the then-current Schedule A, in accordance with Treasury Regulations.
Section 3.2. Distributions
The Manager shall determine, in its sole discretion, the timing and amount of cash distributions from the Company's Available Funds (net cash after provision for expenses, liabilities, and necessary reserves).
All distributions shall be made pro rata to the Members in proportion to their respective Percentage Interests.Note: Distributions must comply with the limitations on distributions set forth in HRS § 428-406.
ARTICLE IV. MANAGEMENT AND VOTING
Section 4.1. Manager-Managed Structure
The Company shall be Manager-Managed. The business, property, and affairs of the Company shall be managed by one or more Managers.
The initial Manager(s) shall be [Name(s) of Manager(s)].
Section 4.2. Powers and Duties of the Manager
The Manager shall have full and complete authority, power, and discretion to manage and control the business of the Company, including (but not limited to) the authority to:Acquire, sell, mortgage, finance, and refinance the Property.
Execute all contracts, deeds, leases, and financing documents on behalf of the Company.Open and control all Company bank accounts.
Maintain the Company's books, records, and tax returns.
Section 4.3. Major Decisions Requiring Member Vote
Notwithstanding Section 4.2, the Manager shall not take any of the following actions without the Approval of Members holding at least [Percentage, e.g., 67% or 75%] of the outstanding Units:
- Sale of the Property. Refinancing the Property that materially increases debt or changes the loan structure.
- Dissolution or winding up of the Company.
- Admission of a new Manager or removal of an existing Manager.
- Amendment of this Operating Agreement.
ARTICLE V. TRANSFER OF INTERESTS
Section 5.1. Prohibition on Transfer
No Member shall Transfer (sell, assign, pledge, or otherwise dispose of) all or any portion of their Units or Membership Interest without the Prior Written Consent of the Manager, which consent may be withheld in the Manager’s sole discretion.
Section 5.2. Right of First Refusal (ROFR)
If a Member receives a bona fide offer from a third party ("Offer") to purchase their Units, the selling Member shall first offer to sell the Units to the Company and the remaining non-selling Members on the same terms and conditions as the Offer.
The Company and the non-selling Members shall have [Number] days to elect to exercise this ROFR.
If the ROFR is not fully exercised, the selling Member may proceed with the sale to the third party, provided the third party executes a Joinder Agreement.
This clause is CRITICAL for keeping the LLC private and avoiding the admission of unwanted co-owners.
ARTICLE VI. BOOKS, RECORDS, AND TAXATION
Section 6.1. Books and Records
The Company shall maintain complete and accurate books and records of the Company’s business and affairs.
The Manager shall make the books and records available to the Members for inspection at the Company’s principal office during normal business hours, upon reasonable notice.
This clause satisfies the HRS § 428-408 requirement for member access to records.
Section 6.2. Tax Classification and Reporting
The Company shall be treated as a Partnership for federal and state income tax purposes.
The Manager shall be responsible for preparing and filing all necessary tax returns (Form 1065) and providing each Member with a Schedule K-1 detailing their share of income, loss, and deductions within forty-five (45) days after the close of the Company's fiscal year.
ARTICLE VII. DISSOLUTION
Section 7.1. Events Causing Dissolution
The Company shall dissolve and its affairs shall be wound up upon the earliest to occur of the following:
- The Unanimous Written Consent of the Members.
- The sale or other disposition of all or substantially all of the Property.
- Entry of a judicial decree of dissolution in accordance with the Act.
ARTICLE VIII. GENERAL PROVISIONS
Section 8.1. Indemnification
The Company shall indemnify and hold harmless the Manager and Members to the fullest extent permitted by the Act, against any claims, losses, or expenses incurred by reason of the Manager or Member acting on behalf of the Company, provided the conduct was in good faith and did not constitute willful misconduct or gross negligence.
Section 8.2. Governing Law
The laws of the State of Hawaii shall govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties of the Members and Manager.
📝 SCHEDULE A: MEMBER INFORMATION AND INTERESTS
Member Legal NameAddressInitial Capital ContributionUnits OwnedPercentage Interest[Your Name][Address]$$$[Amount][Number][%][Investor 1 Name][Address]$$$[Amount][Number][%]TOTAL$$$[Total Amount][Total Units]100.00%
✍️ About the Author
This post was written by @Shortsegments, an author with seven years of experience covering cryptocurrency, the blockchain, digital ledgers, Bitcoin, Ethereum, and Decentralized Finance (DeFi).
You can find all of his market analysis and investment deep-dives here:
👉 Link to his blog
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