An operating agreement is the internal rulebook of an LLC. Some states require one, and even where it is optional it helps preserve limited liability and prevents disputes among owners.
What it covers
- Names of the members and their ownership percentages.
- Capital contributions and what happens if more funding is needed.
- Whether the LLC is member-managed or manager-managed.
- Voting rights and decision-making rules.
- How profits, losses and distributions are shared.
- Rules for transferring or selling a membership interest.
- How the company dissolves.
Why even single-member LLCs need one
A written agreement shows that the company is a separate entity from its owner, which supports liability protection. Banks and lenders may also ask for it. Without one, state default rules apply, and they may not fit your needs.
Common mistakes
- Leaving ownership shares vague.
- No plan for a member leaving or dying.
- Mixing personal and business money.
- Not updating the agreement when ownership changes.
Getting help
Simple one-owner LLCs can often use a state-specific template. Multi-owner companies, especially with investors or unequal contributions, should consider a business attorney. See also our guide to choosing between an LLC and sole proprietorship.
Frequently asked questions
Do I file the operating agreement with the state?
Generally no. You keep it with your company records.
Can we amend it later?
Yes, according to the amendment rules in the agreement itself, which is a good reason to include them.