LLC Operating Agreement Guide

An operating agreement is the internal contract that governs how your LLC is owned and run. It is usually not filed with the state, but it does the practical work: it defines who owns what, who decides, how money is split, and what happens when someone leaves. Courts and banks also look to it as evidence that the LLC is a real, separate business.

Do you need one?

Some states require an operating agreement (in writing in a few), while others do not. Even where it is optional, you should have one. Without it, your state's default LLC statute fills the gaps, and those defaults may not match what you and your co-owners actually intended. Single-member LLCs benefit too, because a written agreement helps demonstrate the separation between you and the company.

Single-member vs multi-member

Clause-by-clause outline

1. Formation and purpose: name, state, principal office, registered agent, and the business purpose.
2. Members and capital: each member's name, initial contribution, and ownership percentage.
3. Management: member-managed or manager-managed, and the authority of each.
4. Voting and decisions: what needs a majority, what needs unanimity, and how ties are broken.
5. Profits, losses, and distributions: how they are allocated and when distributions are made.
6. Tax treatment: whether the LLC is a disregarded entity, partnership, or has elected S corporation status.
7. Transfers and new members: restrictions, rights of first refusal, and approval requirements.
8. Departure and buyout: what happens on withdrawal, death, disability, or divorce, and how the interest is valued.
9. Dissolution: how the LLC is wound up and assets are distributed.
10. Dispute resolution: mediation or arbitration steps before litigation.
11. Amendments and general terms: how the agreement can be changed, plus governing law.

Tips for a stronger agreement

• Write down what happens if members disagree, before they do
• Agree how the business will be valued for buyouts, so nobody negotiates in a crisis
• Keep the signed agreement with your company records and update it when ownership changes
• Have an attorney review anything involving multiple owners, outside investors, or significant assets

Templates are a starting point, not a substitute for advice on your situation. This is general information, not legal advice.

Sample clause language

The wording below is illustrative and should be adapted to your situation and reviewed by a professional for multi-member LLCs.

• Management: "The Company shall be managed by its Members. Each Member has authority to bind the Company in the ordinary course of business, but the following actions require the written consent of Members holding a majority of the ownership interests: ..."
• Distributions: "Distributions shall be made to Members in proportion to their ownership percentages at such times as the Members determine, after payment of Company obligations and reasonable reserves."
• Transfers: "No Member may transfer an interest without the written consent of the other Members. Before any permitted sale to a third party, the Company and remaining Members shall have a right of first refusal at the offered price."
• Buyout on departure: "On a Member's withdrawal, death, or disability, the Company may purchase the departing Member's interest at fair market value determined by an independent appraiser."

When to revisit the agreement

• A new member joins or someone leaves
• Ownership percentages or capital contributions change
• You elect S corporation status
• You take a loan or investment that requires new terms