Operating Agreement
An Operating Agreement is the internal governance document that defines how your LLC is owned, managed, and operated. It establishes ownership percentages, profit distribution rules, management structure, voting rights, and what happens if a member leaves, dies, or wants to sell. Banks require it to open your account. Courts look at it to determine your liability protection. We draft a customized Operating Agreement based on your state, ownership structure, and management preferences — included with every LLC formation or available as a standalone service.
Why Every LLC Needs an Operating Agreement
Even single-member LLCs. Even if your state doesn’t require one. Here’s why skipping it is the most expensive mistake LLC owners make.
❌ Without an Operating Agreement
- State default rules apply: Your state’s LLC statute dictates ownership, profits, voting, and dissolution — and the defaults are probably not what you want
- Weaker liability protection: Courts consider the lack of an Operating Agreement as evidence that you don’t treat your LLC as a separate entity — making it easier to “pierce the veil”
- Bank account issues: Most banks require an Operating Agreement to open a business account, verify authorized signers, and confirm ownership
- Partner disputes unresolvable: Without written rules, every disagreement about money, management, or direction becomes a potential lawsuit
- No exit strategy: If a member wants to leave, dies, or gets divorced — what happens to their ownership interest? Without an agreement, the answer is “whatever the court decides”
✅ With an Operating Agreement
- Your rules, not the state’s: You decide ownership percentages, profit splits, management structure, voting thresholds, and capital contribution requirements
- Stronger liability protection: Courts recognize your LLC as a properly formed, separately managed entity — the corporate veil holds
- Banks accept you immediately: Walk in with your Articles, EIN, and Operating Agreement — account opened the same day
- Disputes resolved privately: Written rules for disagreements, deadlocks, and exits — handled according to your agreement, not in court
- Clean exits and transitions: Buyout provisions, right of first refusal, death/disability transfers, and dissolution procedures are all defined in advance
Only a handful of states legally require an Operating Agreement (New York, California, Maine, Delaware, Missouri). But “not legally required” doesn’t mean “not needed.” It’s like asking if you need a prenup — the law doesn’t require one, but without it, the state’s default rules apply, and those rules rarely match what the parties actually intended. Every LLC attorney, CPA, and formation service recommends one. LLC formation guide →
What Your Operating Agreement Covers
Every section is customized to your state’s LLC statute, your ownership structure, and your management preferences.
Ownership & Capital
Member names, ownership percentages, initial capital contributions, and rules for additional contributions. Defines each member’s economic interest in the LLC — who owns what, who put in what, and what happens if more capital is needed.
Profit & Loss Distribution
How profits and losses are allocated among members — pro-rata by ownership, preferential distributions, guaranteed payments, or custom splits. Also covers distribution timing (quarterly, annually, as determined by manager) and tax distribution provisions.
Management Structure
Member-managed (all members participate in decisions) or manager-managed (designated managers run the business, members are passive investors). Defines who can sign contracts, hire employees, open accounts, and bind the LLC.
Voting & Decision-Making
Voting thresholds for different decisions — simple majority for daily operations, supermajority (67% or 75%) for major decisions like selling assets or admitting new members, unanimous consent for amendments or dissolution.
Transfer & Exit Provisions
Right of first refusal (existing members can buy a departing member’s interest first), buyout terms and valuation methods, restrictions on transferring to outsiders, and what triggers a mandatory buyout (death, disability, divorce, bankruptcy).
Dissolution & Winding Up
What triggers dissolution (unanimous vote, specific events, court order), how assets are distributed during winding up, order of priority for creditors and members, and the process for filing dissolution with the state.
Indemnification & Liability
Protection for members and managers acting in good faith on behalf of the LLC. Defines the scope of indemnification — the LLC covers legal costs and judgments for members acting within their authority. Also limits member liability to their capital contribution.
Additional Provisions
Non-compete and non-solicitation clauses, intellectual property assignment, dispute resolution (mediation before litigation), governing law selection, amendment procedures, and any state-specific requirements your LLC statute mandates.
Single-Member vs Multi-Member Operating Agreements
Same document, very different priorities.
Single-Member LLC
Even with one owner, an Operating Agreement serves critical purposes.
- Primary purpose: Establish the LLC as a separate legal entity for liability protection
- Bank requirement: Most banks require it to open a business account and verify you as the sole owner/signer
- Veil protection: Courts look for evidence that you treat your LLC as separate from yourself — an Operating Agreement is exhibit A
- Succession planning: What happens to the LLC if you die or become incapacitated? Without an agreement, it may dissolve automatically
- Simpler document: 5–10 pages typically — no partner provisions needed
- Tax election: Documents your tax classification (disregarded entity, S-Corp election)
Multi-Member LLC
With two or more owners, the Operating Agreement is your partnership rulebook.
- Primary purpose: Define the relationship, rights, and obligations between members
- Ownership clarity: Who owns what percentage, who contributed what, and how future contributions work
- Profit splits: Can differ from ownership percentages (special allocations) — must be documented to be valid for tax purposes
- Decision authority: Who can spend money, sign contracts, and make binding decisions? Without this, every member has equal authority — even if they own 1%
- Exit provisions: Right of first refusal, buyout terms, valuation methods — this is where partnerships fail without written rules
- Longer document: 15–30+ pages depending on complexity
The #1 mistake multi-member LLCs make: Starting without an Operating Agreement because “we trust each other.” Trust has nothing to do with it. An Operating Agreement isn’t about distrust — it’s about clarity. What happens when one partner wants to leave? When one partner isn’t contributing? When you disagree on a major decision? The agreement answers these questions before they become disputes. Write it while you’re getting along — not after the first fight.
Member-Managed vs Manager-Managed
Your Operating Agreement establishes which structure your LLC uses. Here’s the difference.
👥 Member-Managed
All members participate in day-to-day management and have authority to act on behalf of the LLC.
- Every member can sign contracts, hire employees, and make business decisions
- Voting typically follows ownership percentages
- Simpler structure — no separate management layer
- Default in most states if your Operating Agreement doesn’t specify
Best for: Small LLCs where all owners are actively involved in the business — most 1–3 member LLCs.
💼 Manager-Managed
Designated managers run the business. Members who aren’t managers have no management authority.
- Only managers can sign contracts and make daily decisions
- Members vote on major decisions (new members, dissolution, etc.) but don’t manage daily operations
- Managers can be members or outside professionals
- Must be specified in your Operating Agreement
Best for: LLCs with passive investors, real estate holding companies, and situations where not all owners should have management authority.
Operating Agreement Pricing
Included with every LLC formation or available as a standalone service for existing LLCs.
Included with Formation
All LLC plans (Starter, Standard, Premium)
- State-specific Operating Agreement
- Single or multi-member
- Member-managed or manager-managed
- Customized to your ownership structure
- Digital delivery to dashboard
- Ready for banking
Operating Agreement Only
For existing LLCs
- Everything in formation version:
- State-specific drafting
- Your ownership & management details
- Profit distribution provisions
- Transfer & exit provisions
- Dissolution procedures
Custom / Complex
Special allocations, vesting, etc.
- Everything in Standalone, plus:
- Special profit/loss allocations
- Vesting schedules for members
- Detailed buyout formulas
- Non-compete / IP provisions
- Custom dispute resolution
For LLCs with complex ownership or investor members
Get Custom Agreement →Our Operating Agreement vs an attorney. An attorney-drafted Operating Agreement typically costs $500–$2,000+ depending on complexity. Our standard agreement covers what 90%+ of LLCs need — ownership, management, distributions, transfers, and dissolution — customized to your state. For complex structures (multiple investor classes, waterfall distributions, detailed vesting), consider our Custom tier or consulting an attorney.
Operating Agreement Requirements by State
Every state’s LLC statute handles Operating Agreements differently. We customize yours accordingly.
States That Legally Require One
These states explicitly require LLCs to adopt an Operating Agreement. Operating without one may affect your liability protection and legal standing.
- New York: Required by statute. Must be adopted within 90 days of filing Articles. Doesn’t need to be filed with the state, but must exist.
- California: Required by statute. Written or oral, but written is strongly recommended (oral agreements are nearly impossible to enforce).
- Delaware: Required. Delaware’s LLC Act is the most flexible in the country — your Operating Agreement can override almost every default provision.
- Maine: Required by statute.
- Missouri: Required by statute.
All Other States: Strongly Recommended
The remaining 45 states don’t legally require one — but every attorney, CPA, and formation service recommends it. Here’s what you’re risking without one:
- Default rules apply: Every state has default LLC rules that govern your business if you don’t have an Operating Agreement. In most states, this means equal ownership, equal management, equal profit splits — regardless of who contributes more money, time, or effort.
- Banks may refuse you: Many banks won’t open a business account without seeing your Operating Agreement and verifying authorized signers.
- Veil piercing risk: Courts in every state consider the absence of an Operating Agreement as evidence that you don’t treat your LLC as a separate entity.
- No exit strategy: Without written transfer restrictions and buyout provisions, any member can sell their interest to anyone, at any time.
Real Scenarios: What Happens Without an Operating Agreement
These aren’t hypothetical — they happen to LLCs every day.
💔 Scenario: Partner Wants to Leave
Without agreement: No buyout terms exist. Partner demands immediate cash payment for their interest. You can’t afford it. They threaten to force dissolution of the LLC to get their money out. Court gets involved. Business operations disrupted for months.
With agreement: Buyout clause triggers. Valuation method (book value, appraised value, formula) is pre-defined. Payment terms (lump sum or installments over 2–3 years) are written in the agreement. Business continues operating normally.
⚰️ Scenario: Member Dies
Without agreement: Deceased member’s interest passes to their estate. The estate (or heirs) now has claims to your LLC. You may be forced to work with the deceased member’s spouse, children, or whoever inherits — people who may have no interest in or knowledge of the business.
With agreement: Buy-sell provision triggers. Remaining members have the right (or obligation) to buy the deceased member’s interest at a pre-agreed price, funded by life insurance if specified. Heirs receive fair value. Business continues with its original team.
💸 Scenario: Unequal Contributions
Without agreement: You invested $100K and work full-time. Your partner invested $10K and works part-time. Under most state default rules, you split profits 50/50. Your partner claims equal say in management decisions because state default says all members have equal authority.
With agreement: Ownership is 80/20 reflecting capital contributions. Profit distributions follow ownership percentages (or a custom split). Management authority is clearly defined. The member who contributed more has proportional control.
🏛️ Scenario: Lawsuit Against You
Without agreement: Opposing counsel argues your LLC is a “shell” — no Operating Agreement, commingled funds, no formal structure. Court agrees and “pierces the corporate veil” — you’re personally liable for the LLC’s debts. Your home, savings, and personal assets are at risk.
With agreement: Your Operating Agreement demonstrates the LLC is a properly structured, independently governed entity. Combined with a separate bank account and proper records, the court recognizes your LLC as a legitimate separate entity. Personal assets protected.
Operating Agreement vs Corporate Bylaws
Different entities use different governance documents. Here’s how they compare.
| Operating Agreement (LLC) ✓ | Bylaws (Corporation) | |
|---|---|---|
| Used by | LLCs | Corporations (C-Corp, S-Corp) |
| Owners | Members (ownership units or percentages) | Shareholders (stock shares) |
| Managers | Members or designated managers | Board of Directors + Officers |
| Filed with state? | No — internal document | No — internal document |
| Flexibility | Highly flexible — can override most state defaults | Less flexible — must follow state corporate statute |
| Profit distribution | Can allocate any way members agree (special allocations allowed) | Dividends must be pro-rata per share class |
| Formality required | Minimal — no required meetings or minutes | Annual meetings, formal minutes, board resolutions |
Need corporate bylaws? We include them with every corporation formation.
When to Amend Your Operating Agreement
Your Operating Agreement isn’t set in stone. As your business evolves, the agreement should evolve with it. Amendments require whatever voting threshold your agreement specifies — typically unanimous consent for single-member LLCs and majority or supermajority for multi-member LLCs.
We offer an amendment drafting service ($49) that creates a formal amendment document referencing the original agreement, specifying the changed provisions, and including signature blocks for all members. The amendment is attached to the original agreement — you don’t need to rewrite the whole document.
Common Reasons to Amend
- New member joins: Update ownership percentages, capital contributions, and management provisions
- Member exits: Remove departing member, redistribute ownership, update management structure
- Ownership changes: Sale or transfer of membership interests
- Profit split changes: Adjust distribution ratios based on new contributions or roles
- Management restructure: Switch from member-managed to manager-managed (or vice versa)
- S-Corp election: Document the tax classification change
- Address or name change: Update the agreement to match amended Articles
What Our Customers Say
“My business partner and I kept putting off the Operating Agreement because we ‘trusted each other.’ When we finally had a disagreement about taking on a new project, having the voting and decision-making rules written down saved the partnership. Should have done it from day one.”— Rob & Janet K., Marketing Agency (Illinois LLC)
“Chase wouldn’t open my business account without an Operating Agreement. I ordered the standalone version and had it in my dashboard the next morning. Brought it to the bank and had my account open by noon.”— Tasha M., Freelance Writer (Georgia LLC)
“We have a 3-member LLC with unequal ownership — 50/30/20. The Operating Agreement clearly defines our profit splits, management authority, and what happens if one of us wants out. Exactly what we needed.”— David, Alex & Sarah, E-Commerce (Wyoming LLC)
Frequently Asked Questions
What is an Operating Agreement?
An Operating Agreement is the internal governance document for an LLC. It defines ownership percentages, management structure, profit distribution, voting rights, transfer restrictions, and dissolution procedures. Think of it as the rulebook for how your LLC is owned and operated. It’s not filed with the state — it’s a private document between the members.
Is an Operating Agreement legally required?
Only in a few states: New York, California, Delaware, Maine, and Missouri. However, it’s strongly recommended in all 50 states because: banks require it to open accounts, courts use it to evaluate liability protection, and without one, your state’s default LLC rules apply — which may not match your intentions.
Do single-member LLCs need an Operating Agreement?
Yes. Even with one owner, an Operating Agreement: (1) proves your LLC is a separate entity for liability protection, (2) is required by most banks to open an account, (3) documents your tax classification, and (4) provides succession planning if you die or become incapacitated. Without it, a court is more likely to “pierce the veil” and hold you personally liable.
Does the Operating Agreement need to be filed with the state?
No. The Operating Agreement is a private, internal document. You keep it with your business records and provide it to banks, attorneys, and accountants as needed. Only your Articles of Organization are filed with the state. Some states (like New York) require you to adopt an Operating Agreement but don’t require you to file it.
What’s the difference between member-managed and manager-managed?
Member-managed: all members participate in daily management and can act on behalf of the LLC. Manager-managed: designated managers run the business while non-manager members are passive. Most small LLCs (1–3 active owners) choose member-managed. LLCs with passive investors or where only some owners should have management authority choose manager-managed. Full comparison →
Can we split profits differently from ownership percentages?
Yes — LLCs have this flexibility (corporations don’t). These are called “special allocations” and must be documented in your Operating Agreement and have “substantial economic effect” under IRS rules. For example: a 50/50 owned LLC could split profits 70/30 if one member contributes more work. Your CPA should confirm the allocation qualifies under tax rules.
Can I write my own Operating Agreement?
Legally, yes. Practically, it’s risky unless you understand your state’s LLC statute and the legal implications of each provision. Common DIY mistakes: using a template from a different state (each state’s LLC law is different), missing transfer restriction provisions, setting up tax classifications incorrectly, and omitting indemnification clauses. Our service ($49 standalone or free with formation) produces a state-specific agreement customized to your ownership structure.
Can the Operating Agreement be changed later?
Yes — through a formal amendment. The amendment process should follow whatever voting threshold your agreement specifies (typically unanimous for single-member, majority or supermajority for multi-member). Common amendments: adding or removing members, changing profit splits, restructuring management, and documenting S-Corp elections. We offer an amendment service for $49.
What happens if members can’t agree on a decision?
Your Operating Agreement should include a deadlock resolution procedure — typically: (1) good faith negotiation period, (2) mediation with a neutral third party, (3) arbitration or litigation as a last resort. Some agreements include “shotgun clauses” (one partner makes an offer, the other must buy or sell at that price) or “Texas shootout” provisions. Without written deadlock procedures, you’re headed to court.
Is the Operating Agreement included with LLC formation?
Yes — a customized, state-specific Operating Agreement is included with every LLC formation plan, including our $0 Starter plan. For existing LLCs that need an Operating Agreement (or need to replace an inadequate one), our standalone service is $49. For complex structures with special allocations, vesting, or investor provisions, our Custom tier is $149. LLC formation plans →
Get Your Operating Agreement
State-specific, customized to your ownership structure and management preferences. Included with LLC formation or available standalone for existing LLCs.
Free with LLC formation • $49 standalone • $149 custom/complex
