This template Operating Agreement is for a limited liability company formed under the Pennsylvania Limited Liability Company Act of 2016 that will be taxed as a partnership under the Internal Revenue Code. This template contains practical guidance, drafting notes, and optional and alternate clauses. There are many other models and many other variations of models of operating agreement. A reason for the many models is a limited liability company taxed as a partnership may elect to allocate items of income, gain, loss, and deductions among themselves in various ways. Another reason is that a limited liability company may be taxed as a partnership, or a "C" corporation, or an "S" corporation, for federal income tax purposes. This operating agreement template assumes that each member will have an equal vote, that each member will receive equal distributions prior to liquidation, and that, for federal income tax purposes, each member generally will share equally in the limited liability company's income, gain, losses, and deductions. Upon liquidation, this model distributes the cash proceeds (after all debts are paid) in accordance with the positive balance of the members' capital accounts, but does not require restoration of any deficit capital account balances. A limited liability company taxed as a partnership for federal income tax purposes may instead choose to specially allocate tax items among the members (for example, all income, gain, losses, and deductions associated with manufacturing are allocated to Member A, while all income, gain, losses, and deductions associated with distribution are allocated to Member B). Special allocations will be respected for tax purposes, so long as they have "substantial economic effect." Treas. Reg. § 1.704-1(b)(2). Drafting special allocations requires language that is appropriate for the circumstance and an understanding of tax law. This template should not be used to draft special allocations of tax items. Instead of providing for tax allocations and cash distributions that follow tax allocations, a limited liability company taxed as a partnership for federal income tax purposes may instead provide for how cash proceeds of a liquidation will be distributed, and direct for tax allocations to be made so that, upon liquidation, the members' capital accounts will conform to the cash distribution scheme. These provisions are commonly referred to as "targeted allocations" and, while popular with the business community (primarily because they are easier to understand), the law concerning targeted allocations is still developing. This template should not be used to draft targeted allocations. This template also should not be used, or will need to be substantially revised, for a limited liability company that elects to be taxed as "C" corporation or as an "S" corporation for federal income tax purposes. If a limited liability company elects to be taxed as a "C" corporation, taxable income will be determined at the corporate level, and there is no concept of a "capital account" or allocation of specific tax items among the members. An operating agreement for a limited liability company of this type, therefore, would not provide for capital accounts or allocation of taxable income. A limited liability company of this type also would not make "distributions" in the sense that a partnership makes distributions, but instead would pay dividends to the members in proportion to their ownership interests. As with a "C" corporation, the taxable income of a limited liability company that elects to be taxed as an "S" corporation will be determined at the corporate level. The members in this type of limited liability company will have their own capital accounts, similar to a partnership, but their capital accounts will be determined and maintained according to the rules set forth in § 1362 of the Internal Revenue Code, governing "S" corporation accounting, rather than § 704 of the Internal Revenue Code, governing partnership accounting. For a detailed checklist presenting key issues for consideration when drafting an operating agreement for a Pennsylvania LLC, see Operating Agreement Checklist (PA LLC).