Founder Investor-Backed LLC Agreement — Common and Preferred Units, Board-Managed — Extended Form

This Limited Liability Company Agreement (this Agreement) of [COMPANY NAME], LLC, a Delaware limited liability company (the Company), is entered into as of [DATE] by the Company and the persons listed on Schedule A as Members.

Matter Completion Sheet

Recitals

WHEREAS, the Company was formed by filing a Certificate of Formation with the Delaware Secretary of State on [DATE];

WHEREAS, the Company proposes to issue [NUMBER] Series [A] Preferred Units for $[PRICE] per Unit under the Unit Purchase Agreement dated [DATE] (the Purchase Agreement); and

WHEREAS, the parties wish to state the governance, economic, transfer, information and other rights relating to the Company and its Members.

NOW, THEREFORE, for good and valuable consideration, the parties agree as follows.

1. Definitions and Interpretation

1.1 Defined Terms

Capitalized terms have the meanings in this Agreement and Schedule B. At minimum, define Affiliate, Board, Cause, Change of Control, Common Unit, Company Sale, Disability, Fair Market Value, Founder, Major Investor, Member, Percentage Interest, Permitted Transfer, Preferred Unit, Profits Interest, Required Preferred Approval, Securities, Unreturned Capital, and Units.

1.2 Interpretation Controls

Headings do not alter meaning; “including” is without limitation; “or” is inclusive; references to law include amendments; and documents include permitted amendments. If a schedule conflicts with the body, [THE BODY / IDENTIFIED SCHEDULE] controls. No presumption arises against the drafter. Deadlines use [calendar/business] days and [Eastern] time. All monetary references are U.S. dollars.

1.3 Economic Model Controls

The illustrative model in Schedule C does not override the operative provisions. If the model and Agreement differ, the Agreement controls and the discrepancy must be corrected promptly through the approval process in Section 15. No Member may rely on an ownership or return estimate that omits stated assumptions.

2. Formation, Purpose and Term

2.1 Formation and Name

The Company continues as a Delaware limited liability company under the Delaware Limited Liability Company Act (the Act). The Board may change the Company’s name or registered agent subject to the protective provisions and required filings.

2.2 Purpose and Powers

The Company may engage in [BUSINESS] and any lawful activity approved by the Board. It has all powers available under the Act subject to this Agreement. Regulated, licensed or excluded activities require the approvals and specialist review listed on Schedule D.

2.3 Principal Office; Records

The principal office is [ADDRESS] or another location selected by the Board. The Company will maintain the records required by the Act and this Agreement, including the current Schedule A, tax and financial records, written consents, conflict records, option/profits-interest grants and transfer ledger.

2.4 Term

The Company continues until dissolved under Section 16. A Member’s withdrawal, bankruptcy, death or incapacity does not dissolve the Company except to the extent nonwaivable law requires.

3. Units, Members and Capitalization

3.1 Authorized Classes

The Company is authorized to issue [NUMBER] Common Units and [NUMBER] Series [A] Preferred Units, plus the incentive pool stated on Schedule A. The rights of each class are in this Agreement. No certificate of formation provision, unit certificate, ledger notation or side letter may silently alter those rights.

3.2 Schedule A and Unit Ledger

Schedule A states each holder’s legal name, address, class, Units, contribution, unreturned capital, vesting status and Percentage Interest. The Company may update Schedule A to reflect an authorized issuance, transfer, repurchase, conversion or cancellation without obtaining every Member’s signature, but an update cannot change substantive rights or cure an unauthorized transaction.

3.3 Admission of Members

A person becomes a Member only after satisfying the applicable issuance or transfer conditions, executing a joinder, providing tax and compliance information and being admitted under an authorized Company action. A transferee of economic rights is not a Member and receives no governance or information rights unless admitted.

3.4 Future Issuances

Subject to the Board, protective provisions, preemptive rights and securities laws, the Company may issue Units, options, profits interests, convertible interests and other Securities. Each issuance must state price, vesting, tax treatment, class rights and ledger effective time. Promised equity is not issued equity until lawfully approved and documented.

3.5 Preemptive Rights

[IF APPLICABLE] Each Major Investor may purchase its pro rata share of defined New Securities on the procedures in Schedule E. Define the denominator, excluded issuances, minimum participation, oversubscription, notice period, closing mechanics, transferability and sunset. Failure to respond timely is a waiver only for that issuance.

3.6 No Withdrawal or Return of Capital

No Member may withdraw capital or demand a distribution except as expressly provided. No interest accrues on contributions. No Member is required to restore a negative capital account except under an express written obligation reviewed by tax counsel.

4. Preferred-Unit Economics

4.1 Original Issue Price and Unreturned Capital

The original issue price of each Preferred Unit is $[●]. Unreturned Capital begins with the purchase price allocated to that Unit and is reduced by distributions expressly treated as a return of capital. The ledger must distinguish tax allocations, operating distributions and capital returns.

4.2 Preferred Return or Dividend

[SELECT: No preferred return. / A [cumulative/noncumulative] preferred return accrues at [●]% per year on Unreturned Capital, [simple/compounded] as stated, payable only when declared and legally available.] State whether unpaid amounts compound, participate in conversion, survive transfer and receive priority in a sale. Tax allocations do not themselves pay the preferred return.

4.3 Conversion

Each Preferred Unit is convertible at the holder’s option into [NUMBER/FORMULA] Common Units, subject to equitable adjustment for splits, combinations and recapitalizations. [AUTOMATIC CONVERSION] occurs on [qualified IPO / Required Preferred Approval / other trigger]. Conversion procedures must address notices, fractional Units, ledger updates, accrued preferences and contemporaneous side rights.

4.4 Anti-Dilution

[SELECT: No price-based anti-dilution. / Broad-based weighted-average anti-dilution under the formula in Schedule F.] Define excluded issuances, deemed issuances, adjustments for convertible securities, notice, dispute resolution and termination. Do not import corporate-stock formulas without adapting them to LLC Units and tax consequences.

4.5 Redemption

[SELECT: No redemption right. / Beginning [DATE], Required Preferred Holders may require redemption in [INSTALLMENTS] at [PRICE FORMULA], only from legally available funds and subject to senior obligations.] Define request threshold, allocation, deferral, interest if lawful, solvency restrictions, partial redemption, acceleration limits and Board duties. A redemption right is not a guaranteed exit.

5. Distributions and Waterfall

5.1 Tax Distributions

Subject to law, loan restrictions, reserves and Board approval, the Company will make tax distributions at least [quarterly/annually] using the assumed tax rate and methodology in Schedule G. Tax distributions are advances against and reduce later distributions to the relevant Member, except as Schedule G states. Address differing tax character, residency, withholding and prior losses.

5.2 Operating Distributions

After tax distributions, the Board may distribute available cash after reasonable reserves and contractual restrictions. Operating distributions will be made [pro rata by Percentage Interest / under the stated class priority]. The Board will apply the policy consistently and document any class-specific distribution.

5.3 Company Sale or Liquidation Waterfall

Net proceeds from a Company Sale or liquidation, after creditors, expenses, reserves and required payments, will be distributed in the following order:

1. First, to holders of Preferred Units, pro rata by their applicable preference, until each receives [Unreturned Capital plus accrued unpaid preferred return / stated multiple], subject to lawful availability.
2. Second, [if participating] to all holders on an as-converted basis until [CAP / FORMULA]; [if nonparticipating] the Preferred holder receives the greater of its preference or as-converted amount, but not both.
3. Thereafter, to holders of Common Units [and participating Preferred Units] according to the selected fully diluted formula in Schedule C.

Escrow, holdback, earnout, rollover, indemnity and contingent proceeds must be allocated consistently with the consideration to which they relate and the risk borne. The Board may reserve a reasonable amount and must report releases and reallocations.

5.4 Deemed Liquidation Events

Define mergers, consolidations, equity sales, asset sales, exclusive licenses and related transactions treated as a Company Sale, with approved carve-outs for bona fide financing, internal reorganization and transactions not transferring control. Anti-circumvention language should cover a series of related transactions without capturing ordinary commercial licenses.

5.5 Withholding

The Company may withhold amounts required by law and treat them as distributed to the affected Member. The Member must provide requested tax forms. The Company will provide reasonable evidence of remittance and cooperate on lawful mitigation without bearing material cost or risk.

6. Allocations and Tax Matters

6.1 Intended Tax Classification

The parties intend the Company to be classified as [a partnership / disregarded entity until [EVENT] / corporation] for U.S. federal and applicable state tax purposes. No election inconsistent with that intent may be made without [BOARD AND REQUIRED PREFERRED APPROVAL] and tax advice.

6.2 Section 704(b) Allocations

Profits and losses will be allocated to cause capital accounts to reflect the distribution waterfall, using a target-allocation or other method specified in Schedule G and reviewed by tax counsel. Include minimum-gain chargeback, qualified-income offset, nonrecourse deduction and curative provisions as required by the selected method.

6.3 Contributed Property and Section 704(c)

Tax items attributable to contributed property will be allocated under Internal Revenue Code Section 704(c) using [traditional / traditional with curative / remedial] method as selected in Schedule G. Revaluations, reverse Section 704(c) layers and book-ups require consistent recordkeeping.

6.4 Partnership Representative and Audits

[NAME/TITLE] is the Partnership Representative, subject to Board oversight and notice obligations. The representative may act for the Company in tax proceedings but may not settle a material issue, make a push-out election, extend limitations or allocate an imputed underpayment without the approval in Schedule G. Members must cooperate and bear taxes attributable to their ownership as provided there.

6.5 Tax Returns and Information

The Company will prepare returns consistently with this Agreement, use reasonable efforts to deliver Schedules K-1 by [DATE], and provide Members reasonably requested tax information. No delivery date is guaranteed where third-party or legal constraints intervene, but the Company must give updates and prioritize extension and estimate information.

7. Board Management

7.1 Board Authority

Except for matters reserved to Members or a class, the Company’s business and affairs are managed under the direction of a Board of Managers (the Board). Individual Members and Managers have no authority to bind the Company unless delegated in writing.

7.2 Board Composition

The Board consists of [NUMBER] Managers: [NUMBER] designated by the Common holders/founders, [NUMBER] designated by the Required Preferred Holders, and [NUMBER] independent Manager(s) selected by [PROCESS]. Each designation right is subject to stated ownership thresholds and sunsets in Schedule H. Vacancies are filled by the person or group holding the designation right.

7.3 Removal and Replacement

A designating group may remove and replace its designee with or without cause by written notice. No other group may remove that designee except for a disqualifying event expressly stated in Schedule H and approved through the dispute procedure. A Manager’s resignation does not eliminate the class’s replacement right.

7.4 Meetings, Notice and Materials

The Board will meet at least [quarterly]. Notice is [●] days for regular meetings and [●] hours/days for emergencies. Materials should be delivered [●] days before a meeting where practicable. Waiver of notice does not waive a known conflict or missing class approval.

7.5 Quorum and Voting

Quorum requires a majority of the authorized Managers, including [one Preferred designee and one Common designee] while the relevant rights remain in effect, but anti-boycott mechanics after [NUMBER] adjournments may apply only to ordinary matters and never to a protective provision. Each Manager has one vote. Actions require a majority of Managers present unless this Agreement requires more.

7.6 Written Consent; Remote Participation

The Board may act by written consent and may participate remotely as permitted by the Act and this Agreement. The consent record must identify the effective time, materials reviewed, conflicts disclosed and required approvals. Silence is not consent.

7.7 Committees

The Board may establish committees, but cannot delegate matters prohibited by law or reserved under this Agreement. Committee composition and authority must preserve applicable designation and protective rights. Minutes and reporting obligations mirror those of the Board.

7.8 Observers

Approved observers may attend meetings and receive materials subject to confidentiality, privilege, conflict, competitive-sensitivity, data-protection and legal exclusions. Observers do not vote, are not Managers by reason of attendance and may be excluded for a particular item. Rights terminate under Schedule H.

7.9 Compensation and Expenses

Managers receive [NO COMPENSATION / BOARD-APPROVED COMPENSATION] and reimbursement of reasonable documented expenses. Interested compensation requires conflict disclosure and approval. Investor designees do not receive duplicative fees unless expressly approved.

8. Officers and Delegated Authority

The Board may appoint and remove officers, define authority and adopt an approval matrix. Officers must act within approved budgets, signing limits and reserved matters. The Company will maintain a current delegated-authority schedule. Emergency authority must be narrow, documented and reported promptly.

9. Protective Provisions and Member Voting

9.1 Preferred Approval

While at least [THRESHOLD] Preferred Units remain outstanding, the Company will not, without Required Preferred Approval:

• amend the certificate or this Agreement adversely to the Preferred class;
• create or issue a senior or pari passu class, or materially change the authorized Unit pool;
• redeem, repurchase or distribute on junior interests other than approved founder/employee repurchases or tax distributions;
• incur debt, grant liens or guarantees above the thresholds in Schedule I;
• approve a Company Sale, dissolution, material acquisition or disposition outside approved thresholds;
• materially change the business, tax classification or Board size/composition;
• enter a material related-party transaction outside an approved policy;
• adopt or materially expand equity or profits-interest plans above Schedule I limits; or
• take another action specifically stated in Schedule I.

Each veto must include objective thresholds, aggregation rules, ordinary-course and emergency exceptions, response times and sunset. A protective provision is not day-to-day management authority.

9.2 Member Voting

Members vote by class and Units as stated in Schedule J. Matters requiring approval under the Act or this Agreement may be approved at a meeting or by written consent. Notice, record date, quorum, proxy and consent solicitation procedures must be stated and consistently administered.

9.3 Deadlock

If the Board is deadlocked on a material matter after two good-faith meetings, the issue proceeds to the escalation process in Schedule K: executive conference, independent-manager review and [mediation / status quo]. No deadlock provision forces a sale, dissolution or buyout unless the commercial and valuation mechanics are fully specified and tax and financing consequences reviewed.

10. Information, Budget and Inspection Rights

10.1 Reporting Package

The Company will deliver to Major Investors, subject to Schedule L: annual financial statements; quarterly balance sheet, income statement, cash flow and budget comparison; annual budget; capitalization summary; material litigation and compliance notices; and other agreed information. State accounting basis, audit/review status, delivery dates and responsible owner.

10.2 Inspection

Each Member receives rights required by nonwaivable law. Additional inspection rights require reasonable notice, proper purpose and confidentiality, and may be limited for privilege, trade secrets, personal data, competitive harm, contractual restrictions and disproportionate burden, with reasonable alternative disclosure where practicable.

10.3 Budget and Variances

The Board approves the annual budget and material changes. Management reports variances above [AMOUNT/PERCENT] with cause and corrective action. Failure to meet a projection is not itself a default, but concealment or unauthorized spending remains subject to the approval matrix.

11. Founder and Service-Provider Equity

11.1 Vesting and Repurchase

Founder and service-provider Units are subject to the vesting and repurchase terms in separate award or purchase agreements and Schedule M. Define commencement, credit, acceleration, termination date, cause/good-reason interaction, repurchase price, exercise procedure and tax-election responsibility.

11.2 Intellectual Property and Confidentiality

Each Founder and service provider must execute approved confidentiality and invention-assignment documents. The Company will maintain an IP contribution and assignment record. This Agreement does not itself cure defective chain of title.

11.3 Restrictive Covenants

Any noncompetition, nonsolicitation or related restriction must be in a separate, jurisdiction-reviewed agreement and is enforceable only to the extent lawful. A transfer or repurchase remedy may not impose an unlawful restraint or wage forfeiture.

12. Transfers of Interests

12.1 General Restriction

No holder may transfer a Unit or economic interest except under this Agreement, applicable securities laws and approved tax and regulatory constraints. An attempted prohibited transfer is [void / ineffective against the Company to the maximum lawful extent].

12.2 Permitted Transfers

Permitted Transfers may include transfers to defined Affiliates, estate-planning vehicles and family entities if the transferee signs a joinder, the transfer does not create tax, regulatory or competitor harm, and the transferor remains responsible for accrued obligations. Rights tied to ownership thresholds may aggregate only as Schedule N permits.

12.3 Right of First Refusal

Before a non-permitted transfer, the holder must deliver a bona fide transfer notice stating purchaser, Units, price, form of consideration and all material terms. The Company has [●] days and eligible Members then have [●] days to exercise under the allocation and closing procedures in Schedule N. A later transfer on more favorable terms restarts the process.

12.4 Co-Sale Right

If a covered Founder or holder proposes a transfer after the ROFR process, eligible Members may participate proportionately under Schedule N. The seller must reduce its sale if the purchaser will not buy all offered interests. Excluded transfers, notice, consideration matching, liability allocation and failed-closing treatment must be explicit.

12.5 Drag-Along

If a Company Sale is approved by the Board, Required Preferred Approval and the required Member vote, each covered holder will support and participate subject to Schedule O. No dragged holder is required to give business representations, accept several liability beyond its proceeds (except its own title/authority/fraud), fund another holder’s obligations, accept non-pro-rata escrow without reason, sign a noncompetition covenant as an owner, or receive a different form of consideration solely because of class except under the waterfall.

12.6 Prohibited Transferees

The Company may reject a transfer to a competitor, sanctioned person, person creating regulatory or tax harm, or person lacking required authority, using objective standards and a documented decision. Competitive restrictions must not become a pretext to block a legitimate transfer indefinitely.

13. Standards of Conduct; Conflicts; Opportunities

13.1 Duties and Contractual Standard

To the extent permitted by the Act, fiduciary duties are [PRESERVED / MODIFIED AS EXPRESSLY STATED], but the implied contractual covenant of good faith and fair dealing is not eliminated. The agreement must state the intended standard, exculpation and conflict process clearly; silence is not a deliberate allocation.

13.2 Conflict Procedure

A Manager, officer or Member with a material interest must disclose relevant facts before action. A transaction may be approved by disinterested Managers, a designated committee, disinterested Members or another method in Schedule P. Approval does not validate fraud, bad faith, unlawful distributions or undisclosed facts.

13.3 Corporate Opportunities and Other Activities

[SELECTED INVESTOR-SIDE OPTION] Specified institutional Members and their Affiliates may invest in or advise other businesses, including competitors, and need not present opportunities except those offered to an individual in that person’s capacity as a Manager or officer using Company resources or confidential information. Define the beneficiary, scope, exclusions and interaction with confidentiality; do not use a blanket waiver for operating founders without informed negotiation.

14. Exculpation, Indemnification and Insurance

14.1 Exculpation

To the fullest extent permitted by the Act and subject to the selected duty architecture, a Covered Person is not liable for monetary damages for acts within its authority, except for fraud, bad faith, willful misconduct, knowing law violation, improper personal benefit, unlawful distribution or another nonwaivable category. The provision does not alter contractual payment obligations.

14.2 Indemnification and Advancement

The Company will indemnify a Covered Person who acted in good faith and in a manner reasonably believed to be in or not opposed to the Company’s interests, subject to exclusions and final determination. Advancement requires an undertaking to repay if entitlement is not established. State priority among Company, fund, employer and insurance indemnitors and avoid duplicate recovery.

14.3 Insurance

The Company may maintain D&O, cyber, employment, fiduciary and other insurance as the Board determines. Insurance does not expand substantive indemnification and must be reviewed for exclusions, retention, priority and runoff on a Company Sale.

15. Amendments, Waivers and Side Letters

This Agreement may be amended by [BOARD / MEMBER THRESHOLD] plus any class or individual consent required for disproportionate or adverse changes. No amendment may change a Member’s contribution obligation, distribution priority, vested economics or liability in a manner requiring its consent under law or this Agreement. Waivers are specific and do not create continuing practice. Side letters must be listed in Schedule Q, state their priority and sunset, and cannot bind nonparties to undisclosed obligations.

16. Dissolution and Winding Up

The Company dissolves upon an approved Company Sale or dissolution, entry of a judicial decree, or another event in Schedule R. The Board or approved liquidator will wind up, protect assets, discharge or reserve for liabilities, prosecute and settle claims, dispose of assets and distribute proceeds under Section 5. The liquidator may establish reasonable reserves and must report final allocations. Members receive no asset in kind unless approved and valued under Schedule R.

17. Confidentiality and Publicity

Members must protect nonpublic Company information and use it only for ownership, governance and legal purposes, subject to customary adviser, fund-reporting, legal-demand and independently known exceptions. Recipients remain responsible for their representatives. The Company may withhold privileged, personal, regulated or competitively sensitive information and offer a reasonable alternative. Public use of a party’s name or marks requires consent except for legally required disclosure.

18. Dispute Resolution and Governing Law

This Agreement and internal affairs are governed by Delaware law. Exclusive forum lies in the Delaware Court of Chancery, or if it lacks jurisdiction, another state or federal court in Delaware, subject to enforceability and any selected arbitration. Parties consent to jurisdiction and service as stated. Any jury waiver, fee shifting or arbitration must be conspicuous and separately assessed. Equitable relief is available for actual or threatened breach where legal standards are met.

19. General Provisions

Notices must be sent to Schedule A addresses by the approved methods with defined effectiveness. This Agreement, Purchase Agreement and listed side letters are the integrated agreement on their subjects. Amendments and waivers must follow Section 15. Invalid provisions are reformed only to the lawful minimum without changing the economic bargain. Counterparts and electronic signatures are effective. No third party is a beneficiary except indemnified persons and others expressly identified. Assignment is governed by Section 12. Further assurances must be reasonable and consistent with the agreement.

Signature Page

COMPANY: [COMPANY NAME], LLC — By: ______________________________; Name: [●]; Title: [●]

MEMBER: [MEMBER NAME] — Signature: ______________________________; By/Title if entity: [●]

MEMBER: [MEMBER NAME] — Signature: ______________________________; By/Title if entity: [●]

Schedules and Exhibits

Schedule A — Members and Capitalization

Schedule C — Waterfall and Conversion Model

Schedule H — Board Rights and Sunsets

Schedule I — Reserved-Matter Thresholds

Schedule G — Tax Administration

Schedule N — Transfer Procedures

Schedule Q — Side-Letter Register

Three-Pass Quality Review

Pass One — Corporate and Contract Architecture

• Reconcile certificate, Purchase Agreement, Schedule A, Board rights, protective provisions and transfer rules.
• Confirm class and Member approvals, designation thresholds and amendment consents.
• Confirm no side letter silently overrides a class bargain.

Pass Two — Economics and Tax

• Model the waterfall, conversion, tax distributions, allocations, redemption and exit contingencies.
• Confirm capital-account and allocation provisions implement—not contradict—the commercial waterfall.
• Obtain tax review of contributed property, profits interests, withholding and audit regime.

Pass Three — Operations and Exit

• Test budgets, reporting, conflicts, delegated authority, founder departure, transfers, deadlock and sale.
• Test escrow, earnout, rollover and indemnity allocation through the waterfall.
• Confirm every notice, schedule, ledger and ongoing duty has an owner.

Website Posting README — Not Part of the Agreement

What this resource does. This extended-form master is for an investor-backed Delaware LLC with common and preferred equity and a true Board governance model. It is materially different from a basic multi-member operating agreement.

Prompt to complete the form. “Act as experienced Delaware growth-company and partnership-tax counsel. Using verified facts and documents only, complete EF-086. First produce a missing-information and conflicts report covering capitalization, classes, contributions, preference, participation, conversion, anti-dilution, tax distributions, 704(b)/704(c), Board designations, protective provisions, side letters, founder vesting, transfers, reporting, duties, indemnification and exit waterfall. Then produce a clean agreement, completed schedules, a capitalization/waterfall model assumptions sheet, a tax-issues memo outline, an approval matrix and a deviations report. Do not invent tax results, fiduciary standards, ownership percentages, valuations or regulatory conclusions.”

Required human review. Delaware LLC counsel, partnership-tax counsel, securities counsel, benefits/employment counsel for service equity, IP counsel for contribution/assignment, and regulatory specialists for the business.

Originality boundary. This is clean-room original drafting. It contains no publisher agreement text, annotation, marking, branding or proprietary commentary.

Posting instructions. Publish only after specialist and editorial review. Preserve the practitioner-master warning, separate the website README from the operative agreement, link the reviewed Word file, state that schedules are mandatory, and never imply that the tax-allocation provisions can be completed without partnership-tax counsel.