An Operating Agreement for a real estate syndication is a substantial legal document (often 40–60 pages). Below is a high-level functional draft of the most critical sections.
This draft assumes a Manager-Managed LLC structure (common for syndications) where you (the Sponsor) make the decisions and the Investors (Limited Partners) have limited voting rights.
OPERATING AGREEMENT OF [COMPANY NAME], LLC
THIS OPERATING AGREEMENT is entered into as of [Date], 2026, by and among [Manager Name/Entity], as the Manager, and the persons identified as Members on Exhibit A.
ARTICLE 1: FORMATION & PURPOSE
- 1.1 Formation: The Company was formed as a Michigan Limited Liability Company by filing Articles of Organization with the Province of Michigan on [Date].
- 1.2 Purpose: The primary purpose of the Company is to acquire, own, improve, operate, and eventually sell the real property located at [Address] (the “Property”).
ARTICLE 2: CAPITAL CONTRIBUTIONS
- 2.1 Initial Contributions: Members shall contribute the cash amounts set forth in their signed Subscription Agreements.
- 2.2 Capital Accounts: A separate capital account shall be maintained for each Member.
- 2.3 Additional Capital Calls: If the Manager determines the Company requires additional funds for debt service or repairs, the Manager may request additional contributions from Members pro-rata. (See the “Dilution” clause previously discussed).
ARTICLE 3: DISTRIBUTIONS (The Waterfall)
- 3.1 Available Cash: Defined as cash from operations after expenses, debt service, and reserves.
- 3.2 Order of Priority:
- 8% Preferred Return: 100% to Members until they reach an 8% cumulative annual return.
- Return of Capital: 100% to Members until their Unreturned Capital is zero.
- The Split: 70% to Members / 30% to Manager.
- 3.3 Tax Distributions: The Manager shall distribute sufficient cash to cover Members’ tax liabilities on allocated income.
ARTICLE 4: MANAGEMENT
- 4.1 Authority of Manager: The Manager shall have exclusive control over the business. This includes the power to sign leases, hire property managers, and secure financing.
- 4.2 Major Decisions: A vote of the Majority-in-Interest (over 50%) of Members is required for:
- Selling the Property before [Year].
- Amending this Agreement in a way that reduces a Member’s distributions.
- Merging the Company with another entity.
ARTICLE 5: FEES TO MANAGER
The Company shall pay the Manager the following fees (as disclosed in the PPM):
- Acquisition Fee: [e.g., 1-2%] of the purchase price.
- Asset Management Fee: [e.g., 1-2%] of gross monthly revenue.
- Disposition Fee: [e.g., 1%] of the sales price upon exit.
ARTICLE 6: TRANSFERS & WITHDRAWALS
- 6.1 General Restriction: Members may not sell, gift, or transfer their Units without the prior written consent of the Manager.
- 6.2 Right of First Refusal: If a Member receives a third-party offer to buy their units, the Company has the first right to buy them back at that price.
ARTICLE 7: DISSOLUTION & LIQUIDATION
Upon the sale of the Property, the Company shall be dissolved. The proceeds shall be used to:
- Pay all Company creditors.
- Establish reserves for any contingent liabilities.
- Distribute remaining funds to Members according to the Waterfall in Article 3.
3 Critical “Boilerplate” Provisions to Include
- Exculpation & Indemnification: This protects you (the Manager) from personal liability for business losses, provided you didn’t commit fraud or “gross negligence.”
- Books and Records: States that you will provide an annual report and K-1s to investors by a certain date (usually March 15th or April 1st).
- Dispute Resolution: In Michigan, many sponsors choose Arbitration in [Your County] to avoid the high costs and public nature of a jury trial if an investor sues.
[!IMPORTANT]
Because this document governs millions of dollars in capital and long-term tax consequences, you should have a securities or real estate attorney convert this draft into a “final” version that complies with current Michigan statutes and IRS “Subchapter K” partnership tax rules.