Set Up Your Business - in Minutes!
We have a DIY option you can use to save time and stress.We help you:
- Determine the best business structure
- File the right paperwork
- Stay compliant with the law
Prefer to work with a lawyer?Find one right now.
By Kimberly Lekman, Esq. | Legally reviewed by Bridget Molitor, J.D. | Last reviewed September 23, 2022
This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw’s team of legal writers and attorneys and in accordance with our editorial standards.
The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area.
An LLC operating agreement is a legal document that is similar to corporate bylaws. It is a contract that allows Limited Liability Company (LLC) members to agree on a variety of important issues.
These include things like the LLC's operation, ownership, finances, and more. Without these bylaws, your LLC will have to operate according to the default LLC rules of your state. Those rules may not be ideal for your LLC.
We make business formation EASY. Learn about our DIY business formation services here.
The best policy is to create your LLC operating agreement when you start your business. But if all members agree, you can still create an operating agreement if your LLC is more mature.
The following guide will help you understand the key provisions in an LLC operating agreement.
Not all states require an LLC operating agreement. States that legally require them include California, Missouri, Nebraska, Maine, Delaware, and New York. But state laws are subject to change. Contact your Secretary of State to learn more about your requirements.
Even if your state does not require an operating agreement, it is still a good idea to have one. The U.S. Small Business Association (SBA) recommends that all LLCs create an operating agreement even if it is not required in their state.
Your LLC could need an operating agreement for a variety of reasons:
Yes. An LLC Operating Agreement is a key legal document. This is true whether your LLC is a multi-member LLC or a single-member LLC. For multiple-member LLCs, it is important to agree on ownership, voting rights, and more to avoid future conflicts.
A single-member LLC does not need to worry about disputes between members. But they will still benefit from having an operating agreement in place. Having an LLC operating agreement adds legitimacy to a sole-owner LLC's limited liability status and prevents the business from being seen as a sole proprietorship. This is necessary to help shield you from business liability. If someone sues your business, limited liability protection helps to prevent your personal assets from being at risk. The same is true if your LLC owes debts or other obligations.
Another reason for creating an LLC operating agreement is to avoid your state's default LLC rules. Your state's default rules might not be suitable for your business needs. You can contract out of those default rules through your operating agreement.
States usually have default rules for LLCs that do not have operating agreements. These rules vary by state. Some default state rules provide that profits and losses are distributed evenly among LLC members. Your LLC might prefer to allocate profits and losses according to percentage ownership. You can do this through your operating agreement.
Even if your state's default rules are satisfactory now, they are subject to change. Having an LLC Operating Agreement in place helps you to avoid future uncertainties.
The articles of organization and operating agreement are separate legal documents. Articles of organization are papers that you file with your state. They establish your LLC as an official business entity.
The LLC operating agreement is an essential contract among the members. It establishes the organization and governing rules of the company. The operating agreement is not filed with the state. It should be kept in a secure location with other important LLC documents.
An LLC operating agreement should contain provisions to cover:
To help you familiarize yourself with how an LLC operating agreement might look, we have provided the following sample page:
Limited Liability Company Operating Agreement of_______________________________________, Multi-Member LLC This Limited Liability Company Operating Agreement (“Agreement”) is entered into on ________________________, by and among the company and its members, and each additional person who, through amendment, becomes a party to this Agreement. I. Company Information 1. Company Name: This Limited Liability Company’s (“LLC”) name is __________________. This LLC may also do business under a different name in accordance with the laws of ______________________. 2. Principal Place of Business: This LLC’s principal place of business is located at: _______________________________________________________________________. 3. State of Formation: This LLC was formed on _________________ by filing articles of organization pursuant to the law of the state of ____________________. 4. Members: This multi-member LLC has _____ members named: a. ________________________, with an ownership percentage of: _______% b. ________________________, with an ownership percentage of: _______% c. ________________________, with an ownership percentage of: _______% 5. Registered Office and Agent: The registered office and the registered agent of this LLC are as follows: ____________________________________________. The registered office and agent may be changed by the members by filing a change of registered agent or office form in accordance with the laws and regulations of the state of ____________________. If the members decide to make such a change, it will not be necessary to amend this Agreement to reflect the change. II. Governing Agreement To the extent permitted by law, this Agreement shall form the governing agreement when it differs from applicable default state law. III. Limitation of Liability No member of this LLC shall be liable for the liabilities, obligations, or debts of this LLC unless otherwise required by applicable law. IV. Company Management This company shall be managed exclusively by its members in accordance with the laws of the state of _________________________. Decisions regarding operational matters, business affairs, and other important company matters shall be made through a vote by the members holding a majority ownership percentage in the company. No company member shall sell property, enter into a lease or mortgage, or lend money on behalf of the LLC without unanimous written consent of the members. |
Whether you are a small business startup or an existing LLC, you might have concerns about writing an LLC operating agreement.
If you have questions, you should contact a business attorney today. They can help draft a new LLC operating agreement or update existing agreements.
Looking to start your own business? Use FindLaw's DIY forms to get a legal business entity set up in minutes.
Contact a qualified business attorney to help you navigate the process of starting a business.
We have a DIY option you can use to save time and stress.We help you:
Prefer to work with a lawyer?Find one right now.