You've formed your LLC. Articles of Organization filed. EIN,in hand. But there's one critical document most new business owners skip: the LLC operating agreement. Without it, your business runs on your state's generic default rules, not yours.
QUICK ANSWER
An LLC operating agreement is a legal document signed by all members that governs how your LLC is owned, managed, and operated. It covers ownership percentages, profit distribution, member roles, voting rights, and what happens if a member leaves or the LLC is dissolved. Most states don't legally require one, but every LLC should have one to protect its members and maintain its liability shield.
IN THIS GUIDE
- What is an LLC operating agreement?
- Do you legally need one?
- Single-member vs multi-member operating agreements
- What your operating agreement must include
- Member-managed vs manager-managed
- 5 common mistakes to avoid
- How to get an LLC operating agreement
- How to amend one
- Frequently asked questions
What Is an LLC Operating Agreement?
An LLC operating agreement is a private legal document, signed by all members, that governs the internal workings of your limited liability company. Think of it as the rulebook for your business.
Unlike your Articles of Organization, which are filed publicly with your state, your operating agreement stays internal. It's between you and your co-owners. Your state doesn't review it, but courts absolutely refer to it when disputes arise.
It answers the critical questions every LLC needs to define upfront:
- Who owns what percentage of the LLC?
- How are profits and losses divided?
- Who makes decisions — and how?
- What happens if a member wants to leave or sell their share?
- What happens if the LLC needs to be dissolved?
Without an operating agreement, your state's default LLC laws fill in the blanks, and those defaults may not match what you and your partners actually agreed to.
Do You Legally Need an LLC Operating Agreement?
It depends on your state. A handful of states, including California, Delaware, Maine, Missouri, New York, and Nebraska — legally require LLCs to have an operating agreement. All other states strongly recommend one but don't mandate it.
Even if your state doesn't require one, not having an operating agreement is a serious risk. Here's why:
- Courts use it to resolve disputes. If members disagree on profit splits or decision-making, a judge looks to your operating agreement first. No agreement means state default rules apply, which may not reflect what anyone actually wanted.
- Banks often require it. Most business banks ask for your operating agreement when you open a business bank account or apply for a business loan. Your registered agent may also request it on file.
- It protects your liability shield. One of the main ways LLCs lose liability protection is by not behaving like a separate legal entity. A proper operating agreement reinforces that separation.
- Your CPA needs it. Your accountant needs it to understand how to allocate income and losses among members at tax time.
⚠️ DON'T SKIP THIS
"I'll add an operating agreement later" is one of the most common and costly mistakes new LLC owners make. Get it in place before you open your bank account, bring on clients, or sign any contracts.
Single-Member vs Multi-Member LLC Operating Agreement
The structure of your operating agreement depends on whether your LLC has one owner or multiple.
Single-Member LLC
Even if you're the only member, you still need an operating agreement. It establishes that your LLC is a separate legal entity from you personally, which is exactly what protects your personal assets from business debts. Without it, a court could "pierce the corporate veil" and hold you personally liable.
A single-member operating agreement is simpler, it mainly covers confirmation that you are the sole 100% owner, how profits are distributed to you, your management structure, and what happens to the LLC if you pass away or become incapacitated. See our guide on legal documents every LLC needs for the full picture.
Multi-Member LLC
With two or more members, the operating agreement becomes even more critical. It must clearly define each member's ownership percentage, capital contributions, how profits and losses are split, voting rights, what happens if one member wants to leave or sell, and the dispute resolution process.
BRENDAT TIP
In a multi-member LLC, handshake agreements don't hold up in court. No matter how much you trust your business partners today, get everything in writing from day one.
What Should an LLC Operating Agreement Include?
A complete LLC operating agreement covers these seven core sections:
SECTION 01
Basic Company Information
- LLC name and principal address
- State of formation and effective date of the agreement
- Purpose of the business
- Duration (most LLCs are formed as perpetual)
SECTION 02
Members and Ownership
- Names and addresses of all members
- Ownership percentage of each member
- Initial capital contributions: cash, property, or services
- Future capital contribution requirements
SECTION 03
Management Structure
LLCs can be member-managed (all members run the business) or manager-managed (one designated manager runs it). Your operating agreement must specify which structure you're using and how day-to-day decisions are made.
SECTION 04
Profit and Loss Distribution
- How profits and losses are allocated among members
- When and how distributions are made
- Whether any member receives a salary before distributions
SECTION 05
Voting Rights
- Which decisions require a majority vote vs unanimous consent
- How many votes each member gets (usually proportional to ownership)
- What counts as a quorum for major decisions
SECTION 06
Membership Changes
- How a member can transfer or sell their ownership interest
- Right of first refusal: existing members get first option to buy
- How new members can be added
- What happens if a member dies, becomes disabled, or divorces
SECTION 07
Dissolution
- Under what circumstances the LLC can be dissolved
- How assets are distributed if the LLC is wound down
- Vote required to dissolve the company
See our complete guide on how to dissolve an LLC for the full step-by-step process.
Get Your Operating Agreement Done Right
Brendat's Standard and Premium plans include a professionally drafted operating agreement tailored to your state and ownership structure — no templates to hunt down, no guessing.
Form My LLC — $149 + state fee →
Includes Articles of Organization · EIN · Registered Agent · Operating Agreement
Member-Managed vs Manager-Managed: Which Should You Choose?
This is one of the most important decisions your operating agreement must address. Here's how to think about it:
Member-Managed
All members participate in running the business day-to-day. Best for small businesses and active co-owners.
- All members vote on decisions
- Any member can sign contracts
- Simpler structure
- Most common for small LLCs
Manager-Managed
One or more designated managers run the business. Members may be passive investors.
- Manager makes daily decisions
- Only manager can bind the LLC
- More structured
- Best with outside investors
Most small LLCs with active owners choose member-managed. If you have investors who want returns but not day-to-day involvement, manager-managed is the better fit.
5 Common LLC Operating Agreement Mistakes to Avoid
1. Using a Generic Template Without Customizing It
Free online templates are a starting point, not a finish line. An operating agreement that doesn't match your actual business structure, state law, or ownership arrangement can create more problems than having none at all.
2. Skipping It for Single-Member LLCs
Many solo founders think "I'm the only member, what's to define?" But your operating agreement is what proves your LLC is a real, separate business, not just a personal account with a business name. Banks require it. Courts look for it.
3. Not Addressing What Happens When a Member Leaves
This is the #1 cause of LLC disputes. What happens if a co-founder wants to walk away? Can they sell to an outsider? Does the remaining member have to buy them out? Define this in writing before it ever becomes an issue.
4. Setting Equal Ownership Without a Tiebreaker
50/50 ownership sounds fair, but a deadlock on any decision can paralyze your business. Your operating agreement must define a tiebreaker mechanism, a neutral arbitrator, a specific member with final say, or a defined resolution process.
5. Never Updating It
Adding a new member? Changing profit splits? Shifting management structure? Amend your operating agreement every time something material changes, and make sure all members sign the amendment.
How to Get an LLC Operating Agreement
Option 1: Included With Brendat LLC Formation
The easiest option. When you form your LLC with Brendat's Standard or Premium package, we prepare a professionally drafted operating agreement tailored to your state and ownership structure. No hunting for templates, it's done as part of your formation package.
Option 2: Use a State-Specific Template and Customize
If you already have an LLC and need to create an operating agreement after the fact, look for a state-specific template from your state's Secretary of State website. Make sure it matches your state's LLC laws, reflects your actual ownership percentages, is signed and dated by all members, and is kept on file (you don't file it with the state).
Option 3: Work With a Business Professional
For complex multi-member LLCs, significant capital contributions, or situations involving real estate or intellectual property, working with a qualified business professional ensures your operating agreement addresses every scenario. Brendat is not a law firm and does not provide legal advice — for complex situations, professional counsel is the right move.
How to Amend an LLC Operating Agreement
Business changes, and your operating agreement should evolve with it. To amend:
- Draft the amendment: describe what's changing and the new language replacing it
- Get member approval: most operating agreements require a majority or unanimous vote to amend
- Have all members sign: the amendment must be executed just like the original
- Attach to the original: keep the amendment with your operating agreement and all other LLC records
Common reasons to amend: adding or removing a member, changing ownership percentages, updating management structure, adjusting profit distribution, or changing the business address or purpose.
Frequently Asked Questions
Do I file my LLC operating agreement with the state?
No. Your operating agreement is an internal document, it's never filed with your state. Keep it with your LLC records alongside your Articles of Organization, EIN confirmation, and any amendments.
Does a single-member LLC need an operating agreement?
Yes. Even as the sole owner, an operating agreement proves your LLC is a separate legal entity, which is the foundation of your personal liability protection. Most banks also require it when opening a business bank account.
What happens if my LLC doesn't have an operating agreement?
Your state's default LLC laws govern your business. These laws are generic and may not match your actual intentions. In a dispute, a court applies state defaults, which can lead to outcomes none of the members wanted.
Can I write my own LLC operating agreement?
Yes, but it's risky without guidance. A poorly written operating agreement can leave critical scenarios undefined or accidentally conflict with your state's LLC laws. Brendat's Standard and Premium formation packages include a professionally prepared operating agreement.
Is an LLC operating agreement the same as an LLC agreement?
Yes — different states use different terminology. "Operating agreement," "LLC agreement," and "company agreement" (used in Texas) all refer to the same document. The function is identical regardless of what your state calls it.
How long should an LLC operating agreement be?
A single-member operating agreement can be as short as 3–5 pages. A multi-member agreement for a business with complex profit structures, multiple classes of membership, or outside investors can run 20+ pages. Length matters less than completeness, every key scenario your business might face should be addressed.
Form Your LLC - Operating Agreement Included
Every Brendat Standard and Premium plan includes a professionally drafted operating agreement. No templates, no guesswork — done right from day one.
Standard & Premium include Operating Agreement · All plans include Articles of Organization
Further Reading
About the Author
Brendat Editorial publishes practical guidance for founders navigating business formation, compliance, and growth in the U.S.