The Document Michigan Courts Read First
Michigan runs limited liability companies under Act 23 of 1993, compiled at MCL 450.4101 and following. What makes the state distinctive is not the formation process, which is routine, but what happens when members fall out. Michigan gives a member a statutory oppression claim in MCL 450.4515, and that section contains a carve out that turns the operating agreement into the deciding document: conduct permitted by the articles of organization, an operating agreement, another agreement to which the member is a party, or a consistently applied written company policy is not oppressive conduct at all.
In other words, in Michigan the operating agreement does not merely allocate profit. It defines the boundary of a cause of action. A capital call, a change in compensation, a decision to stop distributions or a termination of employment either sits inside the agreement, in which case MCL 450.4515(2) puts it outside the statute, or it does not, in which case a member can be in the Wayne or Oakland circuit court asking for dissolution.
What Act 23 supplies when the members write nothing
Three defaults are worth knowing before you decide to skip the document. MCL 450.4302(1) says a promise by a member to contribute is not enforceable unless the promise is in writing and signed by that member, so an unwritten commitment to fund the next $150,000 is unenforceable no matter how clearly it was agreed. MCL 450.4404(5) requires a manager, except as otherwise provided in an operating agreement or by a vote of the members, to account to the company and hold as trustee any profit or benefit derived from a transaction connected with the business or from personal use of company property. And MCL 450.4515 supplies the oppression remedy described above, with a damages claim that must be brought within 3 years of accrual or 2 years after discovery, whichever comes first.
The sole owner case in Michigan
A single owner has no one to be oppressed by, which is exactly why the document changes shape. For a one member Michigan company the agreement is evidence of separateness: it names the capital account, states that company funds are not owner funds, records the authorised signer and sets out how the owner is paid. That file is what a bank asks for at account opening, what a lender asks for before a term loan, and what a court reads when a plaintiff argues the company was the owner under another name. Our single-member LLC guide covers the record keeping in more detail.
Does Michigan Require One, and Does It Have to Be Written
No. Michigan's act does not tell members they must adopt an operating agreement, and the state is not on the short list, headed by California, Delaware, Missouri, Maine and New York, whose statutes do. What Michigan does instead is define the term in a way that assumes writing. MCL 450.4102(2)(r) is the definition the Michigan Court of Appeals pointed to when it described the parties' document as "the written agreement regulating the parties conduct in this matter" and treated it as a contract interpreted by ordinary contract principles.
Two other provisions push in the same direction. MCL 450.4302(1) makes an unwritten contribution promise unenforceable. MCL 450.4404(5) lets an operating agreement displace the manager's trustee duty, which means the displacement has to exist in a document a court can read. Michigan does not fine you for informality. It simply declines to enforce the parts of your deal that were never written down.
Nothing is filed. LARA's Corporations Division records the articles of organization, the annual statement and later charter documents through its online filing system. There is no operating agreement form, no submission window and no fee, because there is no filing. The Michigan filings that do carry a fee are formation, the annual statement, certificates of amendment, dissolution and reinstatement.
What Belongs in a Michigan Operating Agreement
Michigan operating agreement at a glance
| Item | Michigan position |
|---|---|
| Statutory requirement | None. Act 23 of 1993 does not compel one |
| Writing | Assumed by MCL 450.4102(2)(r) and required in substance by MCL 450.4302(1) |
| Filed with LARA | No. The Corporations Division does not accept or index it |
| State fee to adopt | $0, because nothing is filed |
| Governing act | Michigan Limited Liability Company Act, MCL 450.4101 and following |
| Custom drafting | $99 flat |
Ten clauses do the work, and in Michigan several of them are drafted against MCL 450.4515 as much as against the money.
1. Members, percentages and what a member is entitled to as a member
Name each member and each percentage. Then name the rights that attach to membership, because MCL 450.4515(2) measures oppression by interference with "the interests of the member as a member". Michigan courts read that against corporate authority describing interests such as voting, examining the books and receiving distributions, so spelling those rights out defines the field.
2. Contributions, and the signature MCL 450.4302 demands
Record what each member contributed with an agreed value, and put every future funding obligation in writing with the member's signature on it. Without that signature MCL 450.4302(1) makes the promise unenforceable, which is how a company ends up with a half funded expansion and no remedy.
3. Member managed or manager managed, and what a manager may keep
Say who runs the company and what a manager may earn from it. MCL 450.4404(5) makes a manager hold profits as trustee unless the operating agreement provides otherwise or the members vote, so a manager who owns the building the company leases needs express permission in the document.
4. Voting weight and the decisions that need more than a simple majority
Decide whether votes follow percentage interest or heads, then list the decisions that need a supermajority: admitting members, borrowing, capital calls, related party contracts, selling the business. A decision taken inside a stated threshold is conduct permitted by the operating agreement for MCL 450.4515(2) purposes.
5. Allocation, distributions and the trap in stopping them
Separate the allocation of taxable income from the payment of cash, and add a tax distribution. Then write the distribution policy carefully. Cutting distributions is one of the classic Michigan oppression allegations, and a policy stated in advance, funding a defined reserve before any payment, is the answer to it.
6. Transfer restrictions and who may hold an interest
Add a consent requirement, a right of first refusal and a mandatory offer on death, divorce, disability or bankruptcy. Without them an interest can travel to a former spouse or a competitor, and the company acquires a member it never chose.
7. Admission, departure and employment
Michigan links employment and membership in a way most states do not. MCL 450.4515(2) says oppressive conduct may include termination of employment or limits on employment benefits to the extent they interfere with distributions or other member interests disproportionately. If a member employee can be dismissed, say so, say on what terms, and say what happens to the interest afterwards.
8. Dissolution, deadlock and the remedies a court can order
Set the events that dissolve the company and the winding up waterfall. Remember what a member can ask for under MCL 450.4515(1): dissolution and liquidation, cancellation or alteration of a provision of the articles or the operating agreement, an order directing or prohibiting an act, a purchase of the member's interest at fair value by the company or by the responsible members, or damages.
9. Federal tax election and the person who signs it
Record whether the company is taxed as a partnership, an S corporation on Form 2553 or a corporation on Form 8832, name the authorised signer and appoint the partnership representative. Michigan taxes flow through income at the member level, so the federal election drives the outcome. Start with the IRS classification guidance for limited liability companies.
10. Amendment method, written policies and dispute resolution
Set the amendment threshold, and while you are there adopt the written company policies MCL 450.4515(2) refers to, because a consistently applied written policy is also outside the definition of oppressive conduct. Add mediation and a buy sell formula so a disagreement has a price rather than a docket number.
Form your LLC
If you would rather not do this yourself, we prepare the articles, check name availability with the state, and file it for you. Or keep reading and file it on your own. This guide covers everything you need either way.
Charging Orders Under MCL 450.4507
Michigan's rule is short and firm. MCL 450.4507(1) provides that if a court of competent jurisdiction receives an application from any judgment creditor of a member, the court may charge the membership interest of the member with payment of the unsatisfied amount of judgment with interest. MCL 450.4507(6) then states that the section provides the exclusive remedy by which a judgment creditor of a member may satisfy a judgment out of the member's membership interest in a limited liability company. Both subsections were quoted in those terms by the Michigan Court of Appeals when it affirmed the dismissal of a garnishment against a company whose alleged member could not be shown to be a member at all.
That case is the practical lesson. The garnishing creditor lost because the person he called a "50/50 partner" was never documented as a member under MCL 450.4501, and the court awarded the garnishee $10,800 in attorney fees and costs against him for a frivolous claim. Membership in Michigan is a matter of record, and the operating agreement is where that record lives.
Michigan says nothing express about single-member companies in MCL 450.4507, which puts it between Nevada, whose NRS 86.401(2)(a) covers a one member company by name, and New Hampshire, which withholds exclusivity from a sole owner. The drafting response is the same either way: restrict assignment, keep distributions discretionary above a stated reserve, and keep the membership record clean enough that nobody has to litigate who owns what.
Member Oppression: the Michigan Section Everyone Should Read
MCL 450.4515(1) lets a member sue in the circuit court where the company's principal place of business or registered office sits, to establish that acts of the managers or members in control are illegal or fraudulent or constitute willfully unfair and oppressive conduct toward the company or the member. If the member establishes grounds, the court may order dissolution and liquidation, cancel or alter a provision in the articles or the operating agreement, direct or prohibit an act, order the purchase of the member's interest at fair value by the company or by the members responsible, or award damages. A damages action must be commenced within 3 years after accrual or within 2 years after the member discovers or reasonably should have discovered the cause of action, whichever occurs first.
MCL 450.4515(2) defines willfully unfair and oppressive conduct as a continuing course of conduct or a significant action or series of actions that substantially interferes with the interests of the member as a member, and adds that it may include the termination of employment or limits on employment benefits to the extent those actions interfere with distributions or other member interests disproportionately as to the affected member.
Then comes the sentence that makes drafting matter: "The term does not include conduct or actions that are permitted by the articles of organization, an operating agreement, another agreement to which the member is a party, or a consistently applied written company policy or procedure." A Michigan operating agreement that authorises capital calls, sets a distribution policy, permits related party leases with disclosure and describes when a member employee may be dismissed has moved all of that conduct outside the statute in advance. One that says nothing has left every decision available as a claim.
Authority, Banks and What Michigan Counterparties Ask For
Michigan does not offer a public statement of authority filing of the kind Minnesota and Nebraska maintain. The public record at LARA shows the entity, its resident agent and registered office, and whether it is managed by members or managers. Everything else about who may sign lives in the operating agreement, which is why third parties ask for it directly.
A Michigan bank opening a business account will want the LARA filed articles, the EIN letter, identification for each beneficial owner and either the operating agreement or a members resolution naming the authorised signers. Federal customer due diligence rules require the bank to identify and certify the beneficial owners of a legal entity customer, and the membership schedule is what makes the ownership percentages checkable. Title companies handling Michigan real property, equipment lessors and general contractors asking for a subcontractor's authority all ask for the same document, and so do the states where the entity later qualifies to do business.
Keep the executed agreement with the file a buyer or a lender will ask for: the articles, the current resident agent designation, a recent certificate of good standing and any assumed name filing.
What Happens Without One: the Michigan Risk in Dollars
Michigan imposes no penalty for not having an agreement. The cost is litigation exposure, and unusually for this subject there are real Michigan numbers to point at.
Start with the frivolous garnishment case above. The creditor who could not show membership under MCL 450.4501 was ordered to pay $10,800 in attorney fees and costs. That is the price of an undocumented ownership claim on the losing side. In a separate Michigan appeal about a member locked out of a company, the trial court's damages award of $46,000 turned on whether treble damages under MCL 450.4515 had been applied correctly to an $11,500 vehicle sale, an argument that ran through trial, a motion for new trial and an appeal, all of which existed because the parties' rights had not been written down clearly.
Now the structural exposure. MCL 450.4515(1)(d) allows a court to order the purchase of a complaining member's interest at fair value. On a Michigan company worth $2.2 million, a 30 per cent interest bought out under a court order is a $660,000 obligation, valued by an expert the members did not choose, payable on terms a judge sets. A buy sell clause in the agreement setting a multiple, a discount for a minority interest and a five year note turns the same event into a scheduled payment the company can fund.
And the fees. A contested Michigan member oppression case that reaches discovery, competing valuation experts and trial routinely costs each side $75,000 to $250,000. The agreement that would have removed most of the claim costs $99.
Five Mistakes Michigan Filers Keep Making
Mistake 1: A template that never mentions oppression
Generic agreements are drafted for Delaware, where there is no MCL 450.4515. They contain no capital call authorisation, no stated distribution policy and no employment terms for member employees, which means none of that conduct is permitted by the agreement and all of it stays available as a claim. A Michigan agreement should be drafted with MCL 450.4515(2) open on the desk.
Mistake 2: The sole owner who has nothing on file
The oppression risk disappears with one member; the separateness risk does not. A Michigan bank, a Small Business Administration lender and a plaintiff's lawyer all ask the same question, and the answer is a signed agreement, a capital account and a company bank account that has never paid a personal bill.
Mistake 3: Agreeing a capital call by email
MCL 450.4302(1) makes a promise to contribute unenforceable unless it is in writing and signed by the member. A message saying "yes, I am in for another $75,000" is not a signed writing. Use a short funding agreement signed by every contributing member, and attach it to the operating agreement as an amendment.
Mistake 4: Sending it to LARA
The Corporations Division does not accept or index it and charges nothing for it, because there is no filing. Attaching it to a state submission puts member names, capital accounts and buyout formulas into a public record for no benefit. Keep it internal and signed.
Mistake 5: Treating a member's salary as separate from their membership
MCL 450.4515(2) brings employment inside the oppression analysis where dismissal or benefit cuts interfere disproportionately with distributions or member interests. A Michigan agreement should say whether membership carries employment, on what notice it ends, and whether the interest must be offered back when it does.
Three Michigan Companies in Practice
Example: a tool and die shop in Warren
Ten Mile Precision Tooling LLC had three members, two active and one passive at 20 per cent. When the active members raised their own salaries by $60,000 each and stopped distributions to fund a press purchase, the passive member sued under MCL 450.4515. There was no distribution policy and no compensation term in the agreement, so nothing was permitted conduct under MCL 450.4515(2). The settlement bought out the 20 per cent interest for $310,000; a stated policy and a compensation committee clause would have cost nothing.
Example: a veterinary group in Grand Rapids
Grand River Animal Care LLC agreed verbally that each of its four member veterinarians would fund $95,000 toward a second clinic. Two paid, two did not. MCL 450.4302(1) made the unwritten promises unenforceable, leaving a $190,000 hole in a build out already under contract. The redrafted agreement added a signed capital call schedule, a dilution formula for non funding members and a 30 day funding window.
Example: a property management company in Ann Arbor
Huron Bluff Property Group LLC managed $4.8 million of student rentals. A member's personal judgment of $220,000 produced a charging order, and because MCL 450.4507(6) makes that the exclusive remedy, the creditor could reach only distributions. The company then discovered its own weak point: two members had never signed anything, and the membership schedule existed only in a spreadsheet. Rebuilding the record with a signed agreement and consent resolutions took a week and closed the argument.
How File.Business Drafts Michigan Operating Agreements
We draft Michigan agreements against MCL 450.4515 first. That means an express capital call procedure with signatures that satisfy MCL 450.4302(1), a written distribution policy, related party transaction consent that displaces the MCL 450.4404(5) trustee rule where the members want it displaced, employment terms for member employees, and a buy sell formula that gives a court less to decide. The finished document arrives with a signature page for each member, a schedule of contributions and vault storage. Included with Michigan LLC formation or available separately.
Free templates against drafted agreements
For a single owner Michigan company with one bank account, a clean template is a reasonable starting point. For anything with two or more members it is a poor trade, because the clauses a template leaves out are exactly the ones MCL 450.4515(2) would have treated as permitted conduct. At $99 the drafted version costs less than an hour of Michigan counsel and a small fraction of the first motion. Read operating agreement essentials next, and the Michigan annual statement for the February compliance date.
Michigan operating agreement questions
Is an operating agreement required for a Michigan LLC?
No. The Michigan Limited Liability Company Act, Act 23 of 1993, does not compel members to adopt one. Michigan is not among the states whose statute uses a mandatory verb. In practice the document still governs, because MCL 450.4515(2) excludes from the member oppression statute any conduct permitted by an operating agreement, so a company without one leaves every management decision available as a claim.
Does a Michigan operating agreement have to be in writing?
The act does not impose a general writing rule, but Michigan treats the agreement as a written contract. MCL 450.4102(2)(r) is the definition, and the Michigan Court of Appeals has described a company's operating agreement as the written agreement regulating the parties conduct, interpreted by ordinary contract principles. MCL 450.4302(1) separately makes a promise to contribute unenforceable unless it is in writing and signed by the member.
Do I file my operating agreement with LARA?
No. The Corporations Division of the Department of Licensing and Regulatory Affairs records the articles of organization, the annual statement and later charter documents. There is no operating agreement form, no submission channel and no fee, because there is no filing. Keep the signed original with the company records.
What does Michigan charge for an operating agreement?
The State charges nothing, because the document is never filed with LARA or anyone else. The only cost is drafting. File.Business prepares a Michigan specific agreement at $99 flat, for a single owner or for a company with several members.
What is member oppression under Michigan law?
MCL 450.4515(1) lets a member ask a circuit court to find that acts of the managers or members in control are illegal or fraudulent or constitute willfully unfair and oppressive conduct. MCL 450.4515(2) defines that as a continuing course of conduct or a significant action that substantially interferes with the interests of the member as a member, and it expressly excludes conduct permitted by the articles, an operating agreement, another agreement the member is party to, or a consistently applied written company policy.
Can a creditor of a Michigan member seize the membership interest?
Only through a charging order. MCL 450.4507(1) lets a court charge the membership interest with the unsatisfied amount of a judgment plus interest, and MCL 450.4507(6) makes that the exclusive remedy by which a judgment creditor of a member may satisfy a judgment out of the membership interest. The statute does not address single-member companies expressly.
How long does a Michigan member have to bring an oppression claim?
MCL 450.4515(1)(e) sets the limit for a damages action at 3 years after the cause of action accrued, or 2 years after the member discovers or reasonably should have discovered it, whichever occurs first. That is shorter than many members expect, and it is one reason to record capital calls, distributions and compensation decisions as they happen.
Need a custom Michigan Operating Agreement?
File.Business drafts Michigan-specific Operating Agreements at $99 flat: customized for single-member or multi-member structure, ownership percentages, capital contributions, tax election preferences, and management structure. Includes member-signature template and document-vault storage.
Doing this in Michigan specifically: Michigan operating agreement drafting sets out the clause set, the Act 23 sections each clause displaces and the MCL 450.4515 carve outs worth building in. None of it is filed with LARA.
The statutory text quoted here was read in published Michigan appellate opinions on the state judiciary's own site, which reproduce the sections verbatim. Confirm the current wording of Act 23 before relying on it.
Disclosure. File.Business is a private filing service, not a government agency and not a law firm. We prepare and submit filings at your direction, and nothing on this page is legal or tax advice. Filing fees, deadlines, and statutory references are current as of the last-updated date shown above and can change. Confirm current requirements with the relevant state agency before you file.
