LLC Operating Agreement Template

An LLC operating agreement is a critical legal document that explains how a limited liability company will conduct its operations. It establishes rules for running the business, including decision-making protocols, member responsibilities, and profit distribution.

By State

By Type

Single Member LLC

This document governs the operations of an LLC with only one member (owner).

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Multi Member LLC

This agreement is for LLCs with two or more members, each of whom holds a membership interest in the company.

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What Is an LLC Operating Agreement?

An LLC operating agreement outlines a limited liability company’s ownership and member duties. The agreement sets out the financial and working relations that suit the specific needs of the business owners.

It defines many crucial aspects of the LLC, including its day-to-day operations and procedures to follow if a member needs to leave the business. The owners should create one following the LLC’s formation to facilitate smooth business performance.

Do I Need an Operating Agreement for an LLC?

The only states that require an LLC operating agreement for LLC formation and maintenance are California, [1] Delaware, [2] Maine, [3] Missouri, [4] and New York. [5]

All other states don’t specifically require an operating agreement to create an LLC. Even though you technically don’t need an operating agreement in the other states, choosing not to have one can result in the following consequences:

• Fewer Legal Protections: Without an operating agreement, the LLC may be interpreted as a sole proprietorship or partnership. This classification could risk members’ personal assets in case of a lawsuit or debt. An operating agreement establishes the LLC as a separate legal entity, ensuring members receive protection from personal liability.
• Trouble with Finances: Many banks, lenders, and investors require an LLC operating agreement to open a business bank account, secure financing, or receive investment funds. Without this document, handling financial transactions, accessing capital, and proving the company’s credibility can be challenging.
• A Default to State Laws: In the absence of an operating agreement, your LLC will be subject to your state’s default rules, which may not reflect the members’ preferences. For example, suppose an agreement doesn’t specify what happens when a member dies. The state may automatically dissolve the LLC, which might not be what the members intended.

Furthermore, an LLC operating agreement can let you specify distributive shares or make special allocations. For example, you may establish that each member’s share of losses and profits is proportional to their ownership percentage (e.g., having 55% ownership in the LLC entitles you to 55% of the profits and losses).

On the other hand, you may make special allocations (e.g., you and your partner have 50/50 ownership, but you settle on an arrangement that lets you receive 70% of the profits while your partner receives 30%).

What to Include LLC Operating Agreement

Here are the essential elements to include in an LLC operating agreement:

• Party Details: List the names of all the members who form the LLC. Provide their full legal names instead of informal designations or nicknames.
• Company Name: State the name under which the company will operate and file its taxes. Ensure the name aligns with the requirements of your state’s business formation office.
• Date of Formation: List the date of the LLC’s formation.
• Principal Place of Business: Provide the LLC’s physical address.
• State of Operation: List the state(s) where the LLC is registered and operating.
• Business Purpose: Explain the purpose of the business and why only specific individuals are allowed to contract on behalf of the LLC.
• Registered Agent: Name the individual who can receive service of process or other correspondence on behalf of the LLC) and write their address.
• Statement of Liability: Explain how each member’s liability will be limited to the fullest extent permitted by law.
• Fiscal Year: List the company’s fiscal year (either the calendar year or a different timeframe that meets your needs).
• Tax Classification: Clarify whether the business will be classified as a partnership, C corporation, or S corporation for tax purposes. A partnership is usually the default, as the other statuses require the owners to meet specific requirements and file the appropriate election with the IRS.
• Membership Interests: Explain the ownership percentage each member has to determine their share of profits and losses. It often correlates with the member’s capital contributions.
• Classes: Divide membership interests into Class A Voting Capital and Class B Non-Voting Capital. You can also state whether the voting members can act (a) only collectively and unanimously, (b) with majority-in-interest, or (c) with 2/3-majority-in-interest.
• Ownership Interests: Outline the rights and obligations that come with LLC ownership.
• Transfer of Interests: Specify the requirements for transferring members’ interests and adding new members.
• Meeting and Voting Rights:
  • Voting Rights: Clarify each member’s voting rights. Voting rights can be proportional to ownership interests or allocated differently.
  • Quorum: Specify a quorum, which is the percentage of voting members that must be present at a meeting for the meeting’s actions to be valid. For instance, you may elect for there to be 50% for a quorum. Bob and Sue each own 10%. You don’t have a quorum if only Bob and Sue are present. Alternatively, Jay could hold 70%. In that case, Jay alone is a quorum.
  • Delegation of Powers: Explain when members or managers can delegate authority to other members, managers, or third parties.
  • Decision-Making: Specify how divisions will be made within the LLC, whether by the members’ majority vote or unanimous consent.
• Management Structure: Decide whether your LLC will be manager-managed or member-managed.
  • Manager-Managed: Members designate a manager to handle the LLC’s day-to-day operations. Outline the manager’s duty to devote reasonable effort, time, and energy to managing the company in a manner that the members deem fair and appropriate.
  • Member-Managed: All members participate in the LLC’s management and decision-making processes.
• Member Contributions: Contributions are the amount of property, services, or money each member contributes to forming the limited liability company and what they may need to contribute in the future. LLC operating agreements should outline the members’ contributions and how they relate to their respective ownership interests.
• Compensation: Outline how the organization will account for its expenses and whether individual members can receive reimbursements for their expenditures. Address the salary of any member or officer within the company.
• Books, Records, and Reporting: Specify that the manager will maintain accurate books and records according to GAAP, provide a comprehensive accounting of the company’s affairs, and ensure that members have the right to inspect records and receive copies of tax returns.
• Dissolution: Outline how and when the LLC will cease to operate. Explain who can dissolve the LLC, clarify voting rights, and provide any automatic dissolution conditions like death or bankruptcy.
• Liquidation: Detail the specific procedures for liquidating company assets, settling payment obligations, and performing accounting tasks to close the business. Specify how the company will distribute remaining liabilities or assets to its members.
• Indemnification: Indemnification provisions protect individual members from liability in several circumstances. It holds that the individual member should not be responsible for damages related to good-faith actions on behalf of the company.
• Confidential Information: Outline any information the members should keep confidential, including trade secrets, capital contributions, proprietary information, personal or financial details, and intellectual property.
• Dispute Resolution: Provide a dispute resolution process if the members can’t resolve issues between themselves. The preferred method is typically arbitration, in which a mediating party will make a binding decision that both parties must follow through with.
• Governing Law: Name the state whose laws will govern the agreement. Clarify that it won’t include its conflicts of law provisions.

LLC Operating Agreement Laws By State

Amending an LLC Operating Agreement

Amendment to an LLC Operating Agreement

Lets the owners modify or remove certain sections of the original LLC operating agreement or propose new additions.

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Sample LLC Operating Agreement

Download a free LLC operating agreement template in PDF or Word format below: