What Is an LLC Operating Agreement?
An operating agreement notes the framework of an LLC, from who runs it to how it can grow.
Learn more about operating agreements in this vast guide.
An operating agreement describes your company’s organizational structure and sets up a chain of command. It protects your interests when starting your company—even if you’re forming a single-member LLC.
In this guide, you’ll learn what to contain in an operating agreement to protect your company and personal assets and how to file and maintain one.
What Is an Operating Agreement?
An operating agreement intends to define rules and procedures for a company. As the company owner, your liability might increase without the structure laid out in an operating agreement. Even if your state doesn’t require one, it might be wise to consider drafting an agreement to protect your interests.
Related: How to Draft an LLC Operating Agreement
For example, if your LLC has multiple members who contributed different amounts when forming the company, you might want to stipulate a profit split reflecting those contributions. Without an operating agreement, your company is governed by the rules in your state, meaning you could be subject to an even split of all profits.
What an Operating Agreement Should Contain
An operating agreement should draft voting rights, member responsibilities, and even meeting frequency. It’s wise to make a contract specific to your needs.
These 13 items can help you explain each part of your company and prove its legitimacy, although your operating agreement will depend on the size of your LLC, your expansion plans, and more.
- Name and Address of Your LLC
Include the legal name of the LLC and its registered address. You might need to add “Limited Liability Company” or “LLC” to your company’s official name. Company’s address must have:
- Be able to receive mail
- LLC Articles of Organization
File reports of the organization. Have this document in your operating agreement to:
- Verify the company’s legitimacy
- Prove the founding date
- Purpose of Your LLC
This is the purpose of your company.
What does your company hope to accomplish? You’ll answer this question when writing your company’s purpose. A purpose statement usually includes:
- An overview of what the company does
- The state where the company operates
Once you file articles of organization with the secretary of state, you can move ahead with writing your operating agreement.
- Write the Operating Agreement
Follow the steps above to craft an operating agreement that addresses your LLC’s exact needs. Once you’ve completed the operating agreement, you’ll need to ensure member consensus.
- Sign the Document
Each member should sign the agreement to indicate the validity and help your operating agreement’s credibility if it is ever questioned.
- File the operating agreement securely
When filing your operating agreement, make copies and distribute them to any members. Nonmembers are not needed to see the operating agreement.
Operating Agreement FAQs
Don’t get hung up on these common questions about LLC operating agreements.
- Is an Operating Agreement Required?
No. Still, it’s a good idea to maintain an operating agreement within your files, regardless of where you operate the business.
- Is an LLC Agreement the Same as an Operating Agreement?
An LLC agreement could refer to an operating agreement or articles of organization—an LLC agreement is not a commonly known entity.
- What Does an Operating Agreement Cost?
Operating agreements do not cost money. Instead, it’s recommended that you hire a lawyer to help you craft this complex and important legal document. Depending on whom you hire, the price of an operating agreement varies.
- Can You Amend an Operating Agreement?
Who can amend operating agreements, but the deal itself might dictate how that amendment can affect. Modifications need member approval and subsequent documentation to make sure they’re enforced. An operating agreement might require a specific majority of votes to pass an amendment.
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