How to write an LLC operating agreement.
The operating agreement is the LLC equivalent of corporate bylaws. It governs ownership, voting, distributions, and member transitions. Even single-member LLCs benefit from having one (it strengthens the liability shield and satisfies bank account requirements). This guide covers required sections, common variations, what to avoid, and our free attorney-reviewed templates.
Step by step.
Legal name of LLC, formation state, formation date, principal address, Registered Agent, term (perpetual or fixed), purpose.
List each member by name, address, percentage interest, capital contribution. Distinguish member-managed vs manager-managed structure.
Initial contributions from each member (cash, property, services). Rules for additional contributions if needed.
How profits and losses are allocated (typically by ownership percentage). Distribution rules (when and how cash is paid out). Tax distributions to cover member tax liability on allocated income.
Decision thresholds: majority for ordinary business, supermajority or unanimity for major actions (admitting new members, dissolution, sale of substantially all assets).
Member-managed (all members run business) vs manager-managed (designated managers, who may or may not be members, run the business).
Right of first refusal on member sales. Drag-along, tag-along rights. Restrictions on transfers to non-family or non-existing-members.
What happens on death, disability, bankruptcy, divorce, or voluntary withdrawal of a member. Valuation method and payment terms.
Events triggering dissolution. Wind-up process. Asset distribution priority.
All members sign. Keep the original in company records. Provide copy to banks and counterparties on request.
What to avoid.
State default rules govern in the absence. Defaults rarely match what members actually want. Plus banks and courts expect to see one.
Industry-specific provisions (e.g., professional ethical rules for PLLCs, real estate special allocations) need tailoring.
"Distributions when the members agree" causes disputes. Specify timing, thresholds, and tax-distribution rules.
When a member dies, divorces, or wants out, the absence of buy-sell triggers expensive negotiation or litigation. Almost every multi-member LLC needs buy-sell terms.
If the operating agreement says manager-managed but Articles of Organization say member-managed, the inconsistency creates ambiguity. Align the two.
Common questions.
Do I need an operating agreement for a single-member LLC?
Can I write it myself or do I need a lawyer?
How long is a typical operating agreement?
Does the state file it?
Can we amend it later?
What if members do not sign?
Does S-Corp election change the operating agreement?
What about manager-managed vs member-managed?
Can foreign founders use the same template?
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