LLC Operating Agreement: What It Is, What It Covers, and How to Get One

Most states don’t legally require one, but running an LLC without one means your state’s generic default rules fill in the gaps. Those rules rarely match what you and your co-owners actually agreed to.

What Is an LLC Operating Agreement?

An LLC operating agreement defines how your LLC is owned, managed, and operated. It sets the rules for ownership percentages, profit distribution, decision-making authority, and what happens when a member exits. Every member is bound by its terms.

Unlike your Articles of Organization, which are filed with the state to legally create the LLC, an operating agreement is never submitted to any government office. It stays private, kept with your business records, and governs how the company actually runs day-to-day. It replaces vague verbal understandings with enforceable written rules before disagreements have a chance to surface.

Operating Agreement vs. Articles of Organization: What’s the Difference?

Operating agreements and articles of organization are two documents with entirely different jobs, and confusing them is one of the most common mistakes new LLC owners make.

Articles of Organization establish that the LLC exists. The operating agreement determines how it functions: who controls what, who gets paid how much, and what procedures apply when major decisions arise. Filing Articles without an operating agreement leaves your LLC with no internal rulebook. State default rules step in, and they rarely reflect what the members actually agreed to.

Is an Operating Agreement Required for an LLC?

Most states do not legally require an operating agreement, but a handful do, and every state strongly recommends one.

California, Delaware, Maine, Missouri, and New York legally require one.

In all other states, an operating agreement is not legally required. Without one, state default rules govern your LLC. Those rules are generic and weren’t written with your business in mind.

What Happens If You Don’t Have an Operating Agreement?

State default rules often conflict with what members actually intended. Many states default to splitting profits equally among all members regardless of capital contributed. So if you put in 70% of startup capital and your co-founder put in 30%, the default may still give you an even split. Some states also impose default dissolution triggers that can force your LLC to wind down after a member’s exit, unless your operating agreement explicitly says otherwise.

What to Include in an LLC Operating Agreement

Every well-drafted agreement should address these core provisions.

• LLC name, formation date, and principal address — establishes basic legal identity and confirms it matches your state filing.
• Member names and ownership percentages — lists every member and specifies each one’s ownership stake, which must total 100%.
• Capital contributions — records what each member contributes at formation: cash, property, or services.
• Profit and loss allocation — defines how the LLC distributes earnings and absorbs losses, and whether splits follow ownership percentages or a separate formula.
• Management structure — specifies whether the LLC is member-managed or manager-managed, along with roles and responsibilities.
• Voting rights and decision-making thresholds — sets what percentage of member votes approves routine decisions versus major ones, such as taking on significant debt or adding a new member.
• Member admission and exit procedures — covers how new members may be admitted, what happens if a member withdraws, and procedures for expulsion.
• Transfer restrictions on membership interests — without these, a member could sell their stake to an outside party and fundamentally change the company’s internal dynamics.
• Dissolution and winding-up procedures — specifies grounds for dissolution, protecting all members if the business cannot continue.
• Dispute resolution process — defines how disagreements are handled, helping members resolve conflicts without costly litigation.

Optional provisions worth considering.

• Confidentiality clauses protect trade secrets from being disclosed by departing members.
• Non-compete restrictions prevent departing members from immediately setting up a competing business.
• Indemnification provisions commit the LLC to cover legal costs incurred by members who act in good faith on the company’s behalf.

Key Clauses to Customize (and Why They Matter)

The clauses that protect you most are the ones most often left at default settings, and most likely to cause problems when they are.

Voting thresholds. Most states default to majority-vote for routine decisions and unanimous consent for major ones. A two-member LLC with a 50/50 split and no tiebreaker provision is one disagreement away from a deadlock.

Profit allocation. The default in most states is equal distribution regardless of ownership percentage or contribution. If members have unequal stakes or contributed different amounts, your agreement must state the actual formula.

Member exit and buyout terms. Without a written buyout process, a departing member’s interest has no agreed valuation method, no timeline, and no transfer mechanism. Specify how the LLC values a departing member’s interest (book value, agreed appraisal, or a fixed formula), who has the right to purchase it, and over what timeframe.

Dissolution triggers. Many states impose default dissolution rules that activate when a member leaves or dies. Your operating agreement should explicitly state that the LLC continues after a member’s departure and define the specific circumstances that actually trigger dissolution.

Single-Member vs. Multi-Member vs. Manager-Managed LLC Operating Agreements

The structure of your LLC, including how many owners it has and who runs day-to-day operations, directly shapes what your agreement needs to cover.

Single-member LLC. An operating agreement gives you clear evidence that your personal and business finances are separate. A bank may also require it to open a business account or secure a loan. Your agreement is simpler than a multi-member version — no voting procedures, no profit-split formulas — but it still establishes that you and your business are legally separate.

Multi-member LLC. This is where the operating agreement earns its keep. Ownership percentages, voting thresholds, profit distributions, and exit procedures all need to be written down, because verbal agreements between co-owners rarely survive disagreements intact.

Manager-managed LLC. Only designated members or non-members have authority to run the business; other members are passive investors. The manager controls daily operations, including hiring, payments, and contracts, while owners retain authority for major structural decisions like mergers or dissolution. Your operating agreement must define the manager’s authority clearly, including what actions require member approval. Leave that scope undefined, and you risk a manager overstepping or being unable to act when the business needs a quick decision.

How to Fill Out an LLC Operating Agreement: Step-by-Step

1. Enter your LLC’s basic information. Legal name exactly as it appears on your Articles of Organization, state of formation, principal business address, and effective date.
2. List all members and their ownership percentages. Assign each member a specific percentage. Confirm all percentages total exactly 100%.
3. Record each member’s capital contribution. Document what each member contributed: cash, property, or services. Vague descriptions create disputes later.
4. Choose your management structure. Decide member-managed or manager-managed. Name any managers if applicable.
5. Set voting thresholds. Specify what percentage approves routine decisions versus major ones, such as adding a member, taking on significant debt, or dissolving the LLC.
6. Define profit and loss allocation. State whether distributions follow ownership percentages or a separate formula. Either is valid; what matters is that it’s written down.
7. Outline member exit and buyout procedures. Address what happens when a member wants to leave, becomes incapacitated, or dies.
8. Add dissolution terms. Specify what events trigger dissolution and how remaining assets get distributed after debts are paid.
9. Have all members sign and date. Most states do not require notarization, but signatures from every member are non-negotiable.
10. Store the signed agreement with your business records. Do not file it with the state. Keep a copy accessible to all members.

Common Mistakes in LLC Operating Agreements

• Using a generic template without customizing it. A boilerplate agreement that ignores your actual ownership percentages, management structure, or voting thresholds isn’t much better than no agreement at all.
• Leaving out member exit and buyout provisions. Without a written process for valuing and transferring a departing member’s interest, a single departure can stall the business.
• Never updating the agreement after major changes. Adding a member, shifting management structure, or taking on outside investment changes how your LLC operates. An outdated agreement doesn’t govern those new realities.
• Skipping the operating agreement for a single-member LLC. Without a written agreement, courts have less evidence that your business and personal finances are truly separate.
• Defaulting to equal profit splits without discussing it first. If equal distribution doesn’t reflect what members agreed to, document the exception explicitly.
• Using vague dispute resolution language. “Members will resolve disputes in good faith” doesn’t hold up. Specify the process — mediation, arbitration, or litigation — before a conflict makes that decision for you.

Can You Create Your Own LLC Operating Agreement?

Yes, and plenty of business owners do. The real question isn’t whether you can, but whether you should, given your LLC’s complexity and what’s at stake.

Draft one from scratch. This works for simple, single-member LLCs with straightforward operations. The risk is missing provisions you didn’t know to include, leaving gaps that default state rules fill on their terms, not yours.

Use a template. Basic online templates work well for simple LLCs. A good template prompts you through every core provision. Don’t just swap in your name and sign it; every section needs to reflect the deal you and your co-owners actually made.

Work with an attorney. With a 50/50 split, you need a tiebreaker, and that’s usually when you want an attorney involved. The same logic applies to LLCs with unequal ownership, outside investors, complex profit structures, or high-value assets. Professional drafting almost always costs less than resolving the dispute a vague clause creates later.

Frequently Asked Questions About LLC Operating Agreements

Does an LLC Operating Agreement Need to Be Notarized?

No state legally requires notarization. An operating agreement is valid once all members sign it. That said, notarized agreements carry greater evidentiary weight in legal proceedings, some banks require a notarized copy as a matter of internal policy, and notarization is recommended if your LLC holds real estate.

Do I Need to File My Operating Agreement With the State?

No. Operating agreements are never filed with the state, even in states that legally require one.

Where Should I Keep My LLC Operating Agreement?

Keep the original signed copy in your LLC’s records binder alongside your Articles of Organization and EIN confirmation. Every member should have access to a copy. Retain prior versions as well, since a dated record of amendments can matter in a dispute.

When Should I Update My LLC Operating Agreement?

Update it whenever your LLC experiences a material change. Common triggers include.

• Adding or removing a member
• Changing ownership percentages
• Switching management structure
• Electing S Corporation tax status
• Taking on outside investment or significant new debt
• A member’s death or incapacitation

Review the agreement at least every two years even if no triggering event has occurred.

Can I Get a Free LLC Operating Agreement?

Yes. Free templates are widely available. If you start as a single-member LLC and later add members, you’ll likely need to draft a new agreement, so build in that flexibility from the start. Complex structures with unequal ownership or outside investors benefit from attorney review.