How to Create an LLC Operating Agreement

Start After Your LLC Is Legally Formed

Your operating agreement governs an entity that has to exist first, so draft and sign it after, or at the same time as, filing your Articles of Organization with the state. Many owners prepare the operating agreement in parallel with the state filing so it's ready to sign the day the LLC is approved.

Core Sections Every Operating Agreement Should Cover

While no state dictates a required format, a complete operating agreement typically addresses:

• Ownership structure: each member's name, ownership percentage, and capital contribution (cash, property, or services) to the LLC.
• Profit and loss allocation: how the LLC's profits and losses are divided among members, which doesn't have to match ownership percentages exactly if the members agree otherwise.
• Management structure: whether the LLC is member-managed, where every member participates in running the business, or manager-managed, where one or more designated managers handle day-to-day decisions.
• Voting rights and decision thresholds: what percentage of member approval is needed for routine decisions versus major ones, such as selling the business or taking on debt.
• Admitting new members: the process for bringing in a new member and how that affects existing members' percentages.
• A member's exit or death: how a member can sell or transfer their interest, whether remaining members have a right of first refusal, and what happens to the interest if a member dies or becomes incapacitated.
• Dissolution: the process and vote required to wind down and dissolve the LLC entirely.

Single-Member LLCs Still Need One

With only one member, there's no other party to vote with, but the operating agreement still matters. It documents, in writing, that the LLC operates as a separate entity from its owner, which supports the liability protection an LLC is meant to provide, and many banks ask to see one before opening a business account, even in states where the law doesn't require it. A single-member version is typically shorter, focusing on management authority and what happens to the LLC if the sole owner dies or becomes incapacitated, since there's no multi-party profit split or voting threshold to work out.

Check Whether Your State Requires One by Law

Most states let an LLC's operating agreement be written, oral, or even implied by how the members act, with no legal requirement to have one at all. California is different: it requires every LLC, including single-member ones, to adopt an operating agreement, written or oral, though it's never filed with the Secretary of State. New York goes further and requires a written operating agreement specifically, adopted before, at the time of, or within 90 days after filing Articles of Organization, kept with the LLC's own records rather than submitted to the Department of State. Check your own state's rule, since a requirement to have one doesn't mean the state ever collects or reviews a copy.

Get It Signed by Every Member

Once drafted, every member should sign the operating agreement to make it effective and binding. Keep signed copies with your LLC's permanent records, alongside your Articles of Organization and EIN confirmation, rather than filing it anywhere.

Decide Between a Template and Custom Drafting

A free or low-cost template covers the basics well for a simple LLC with an even ownership split among a small number of members. A multi-member LLC with unequal ownership, outside investors, or a planned ownership transfer benefits from an agreement drafted or reviewed by a business attorney, since a generic template may not address those specifics correctly.

Revisit It When Things Change

An operating agreement isn't a one-time document. Amend it whenever ownership percentages change, a member joins or leaves, or the management structure changes, so it continues to reflect how the LLC actually operates.

Without One, Your State's Default Rules Apply

If members never adopt an operating agreement, your state's LLC statute fills the gap on everything the members never addressed themselves, from how profits are split to what happens if a member wants out. Those default rules are written for the general case and rarely match what the specific owners actually intended.

Keep It Consistent With Your Articles of Organization

Your operating agreement should not contradict what's stated in your Articles of Organization, such as whether the LLC is member-managed or manager-managed. If you change the management structure later, update both documents, even though only the Articles of Organization requires a state filing to amend.

Banks and Lenders Commonly Request It

When opening a business bank account or applying for financing, expect to provide your operating agreement alongside your approved Articles of Organization and EIN, even in a state that doesn't legally require the agreement to exist. Banks use it to confirm who is authorized to act on the LLC's behalf.

Complex Ownership Structures Need Professional Drafting

A template works for a simple, evenly split LLC. An LLC with outside investors, unequal profit splits, or a planned buyout arrangement should have its operating agreement drafted or reviewed by a business attorney, since the specific terms carry real legal and financial consequences if they're unclear or incomplete.

This Isn't Legal Advice

What belongs in your specific operating agreement depends on your ownership structure, your state's default LLC rules, and your members' actual intentions. Talk to a business attorney before finalizing an agreement for anything beyond a simple, single-member or evenly split multi-member LLC.