LLC Operating Agreement

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 3,979 reviews

Jump to Section

Need help with an LLC Operating Agreement?

Post Project Now

Post Your Project (It's Free)

Get Bids to Compare

 Hire Your Lawyer

What Is an LLC Operating Agreement?

A Limited Liability Company (LLC) operating agreement, also known as an LLC agreement, LLC partnership agreement, or operating agreement, is a legal document that establishes the relationship of the LLC members to one another. The LLC operating agreement details each member's rights and responsibilities. It outlines how these individuals will run the shared company together.

An LLC is a business formation that offers limited liability protection to its members. If a creditor pursues a collection on the business's debts, the LLC protects each individual member. This is different from a general partnership, in which the members are personally liable for the debts and responsibilities of the business. The LLC itself is not taxed. Rather, each member pays taxes on their share of the business's profits or losses based on that individual's personal income.

Components of an LLC Agreement

There are no formal requirements for the information included in your LLC Agreement. You should tailor this document to the unique needs of your business. However, the components listed below are typically included in some fashion.

Organization

This section specifies:

  • The name and address of the company
  • The date the LLC was created
  • Who the members are
  • The structure of ownership
  • A description of services or statement of intent for the business

Management and Voting

This part of the document details how the company is managed. You may have all members involved in the management or specify certain individuals who are responsible for various aspects of management. It's important to detail each individual's duties and specify their level of authority. You should also address how managers are elected, how long they serve, and what salary they are paid.

This section also specifies if and how voting will take place. If members choose to vote on decisions, you must determine how votes are allocated. You might give each member the same number of votes or distribute votes by ownership. The operating agreement should also specify how many votes are needed for a particular action.

In most cases, voting will take place at member meetings. Specify how often meetings will take place. Here is an article that explains how to hold a successful LLC meeting.

Capital Contributions

This section details:

  • Funds members have contributed to the company
  • Contributions of cash or services provided by members
  • Methods for raising future funds, including whether members may be required to contribute additional funding
  • Whether ownership units are awarded in exchange for funds

Distributions

Here, you will detail how profits and losses are distributed. You must specify the allocation of funds, physical property, and all other business assets. In most cases, members share in profits and losses in accordance with their percentage of interest in the company.

This section also details when profits are distributed. You should specify whether members can draw from their profits at will or if they're required to wait for a specified period. Take a look at this article to explore LLC ownership and profit distribution in more detail.

Membership Changes

Changes in membership may happen for a variety of reasons. This section of your LLC operating agreement should specify how you will handle all types of membership changes, including:

  • Adding new members
  • Transferring membership directly from an existing member to someone new
  • Whether existing members have the right of first refusal when another member sells their shares
  • The death of a member
  • The bankruptcy of a member
  • Divorce between members
  • What happens if a member becomes disabled
  • How a member can voluntarily withdraw
  • Actions that may justify the expulsion of a member
  • The process of expelling a member from the LLC

Dissolution

The final section will typically detail how the LLC may be dissolved. This details the circumstances in which you might dissolve the LLC and how you will allocate assets and conclude the company's affairs.

The Difference Between an LLC Operating Agreement and Articles of Organization

The articles of organization is a legal document that's required for the formation of an LLC. You must file this with the state to register the LLC as a formal business entity. You will file your articles of organization to establish the LLC initially. Your LLC operating agreement is an internal document that's drafted after the LLC has been formed.

What State To Establish Your Operating Agreement In

If you're operating a physical business, you must register your LLC and create all subsequent documents within the state where that business resides. However, if you are running an online company where the physical location isn't clearly defined, you may be able to form your LLC in a state other than the one where you live.

Each state has different requirements for LLCs, so you may want to investigate the differences if you have some flexibility in where you form your LLC. If you would like to register your LLC in another state, you must work with a Registered Agent residing in that state. The Registered Agent is either a member of the LLC or a third party who collects legal notices on behalf of the LLC. In some states, the Registered Agent must be a third party.

You must note the name of your Registered Agent on the LLC operating agreement. If you operate in multiple states, you do not need multiple operating agreements. Create your operating agreement for the state in which the LLC is registered.

Image via Unsplash by officestock

What To Do With Your LLC Operating Agreement

Check with your Secretary of State's office for the legal requirements regarding your LLC operating agreement. Some states require that you file an initial report of the information or publish a notice of your LLC's formation. You do not need to file the LLC Operating Agreement itself anywhere, but you should:

  • Provide a copy to all members of the LLC
  • Keep the agreement in a file with other important business documents
  • Review and update the document any time you add or lose a member
  • Review the document annually for any necessary changes

The Benefits of an LLC Operating Agreement

An LLC operating agreement is required by law for all LLC's in:

  • California
  • Delaware
  • Maine
  • Missouri
  • Nebraska
  • New York

In other states, this document is not required, but it is strongly recommended. In an LLC with multiple business partners, the operating agreement provides essential operating guidelines that clearly define each member's role within the company. If you have sole ownership of your LLC, this document will give you greater credibility as a well-organized business and will give you greater legitimacy if you're called to uphold the status of your LLC in court.

Your LLC operating agreement can also help you override your state's default rules. Each state has a set of governing rules that your LLC must default to if you have not set forth different rules. For example, many states will have you divide profits and losses equally unless otherwise specified. However, if your members have contributed different amounts to the business, you may want to allocate profits and losses in accordance with their investments.

It's typically best to consult with a contract lawyer when you're preparing your LLC operating agreement. This ensures that all members' rights are protected and that the document is properly drafted to stand up in court should a dispute take place. You may also want to consult with a tax lawyer, particularly regarding the distribution of profits. Keep in mind that you can and should amend your LLC operating agreement as your company grows and changes. Keep this document up to date so that it always upholds the best interests of the company and its members.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our LLC Operating Agreement Lawyers

Albert M. on ContractsCounsel
View Albert
5.0 (5)
Member Since:
February 8, 2021

Albert M.

Attorney
Free Consultation
Get Free Proposal
Woodbury, NJ
20 Yrs Experience
Licensed in NJ
Rutgers School of Law - Camden

I am a New Jersey licensed attorney and I have been in practice for over nineteen years. My practice mainly consists of representing public entities (municipalities, school boards, etc) and businesses, both small and large. In that capacity, much of work consists of drafting, reviewing and revising contracts.

Briana C. on ContractsCounsel
View Briana
5.0 (33)
Member Since:
February 15, 2021

Briana C.

Founder, Branch Legal LLC
Free Consultation
Get Free Proposal
Boston, MA
11 Yrs Experience
Licensed in CA, MA, NY
Columbia University School of Law

Legal services cost too much, and are often of low quality. I have devoted my law practice to providing the best work at the most affordable price—in everything from defending small businesses against patent trolls to advising multinational corporations on regulatory compliance to steering couples through a divorce.

Jo Ann J. on ContractsCounsel
View Jo Ann
5.0 (6)
Member Since:
February 22, 2021

Jo Ann J.

Partner
Free Consultation
Get Free Proposal
Boston, MA
27 Yrs Experience
Licensed in MA
Suffolk Universtiy Law School

Jo Ann has been practicing for over 20 years, working primarily with high growth companies from inception through exit and all points in between. She is skilled in Mergers & Acquisitions, Contractual Agreements (including founders agreements, voting agreements, licensing agreements, terms of service, privacy policies, stockholder agreements, operating agreements, equity incentive plans, employment agreements, vendor agreements and other commercial agreements), Corporate Governance and Due Diligence.

Meghan P. on ContractsCounsel
View Meghan
4.8 (5)
Member Since:
February 15, 2021

Meghan P.

Attorney
Free Consultation
Get Free Proposal
Denver
5 Yrs Experience
Licensed in CA
University of Dayton

I am a licensed attorney and a member of the California Bar. I graduated from the University of Dayton School of Law's Program in Law and Technology. I love IP, tech transfers, licensing, and how the internet and developing technology is changing the legal landscape. I've interned at both corporations and boutique firms, and I've taken extensive specialized classes in intellectual property and technology law.

Charlotte L. on ContractsCounsel
View Charlotte
4.6 (2)
Member Since:
February 25, 2021

Charlotte L.

Self-Employed Legal Consultant
Free Consultation
Get Free Proposal
Arlington, VA
9 Yrs Experience
Licensed in DC, VA
University of Virginia School of Law

I hold a B.S. in Accounting and a B.A. in Philosophy from Virginia Tech (2009). I received my J.D. from the University of Virginia School of Law in 2012. I am an associate member of the Virginia Bar and an active member of the DC bar. Currently, I am working as a self-employed legal consultant and attorney. Primarily my clients are start-up companies for which I perform various types of legal work, including negotiating and drafting settlement, preparing operating agreements and partnership agreements, assisting in moving companies to incorporate in new states and setting up companies to become registered in a state, assisting with employment matters, drafting non-disclosure agreements, assisting with private placement offerings, and researching issues on intellectual property, local regulations, privacy laws, corporate governance, and many other facets of the law, as the need arises. I have previously practiced as an attorney at a small DC securities law firm and worked at Deloitte Financial Advisory Services LLC. My work experience is dynamic and includes many short-term and long term experience that span across areas such as maintaining my own blog, freelance writing, and dog walking. My diverse background has provided me with a stong skill set that can be easily adapted for new areas of work and indicates my ability to quickly learn for a wide array of clients.

Jonathan D. on ContractsCounsel
View Jonathan
Member Since:
February 8, 2021

Jonathan D.

Principal
Free Consultation
Get Free Proposal
Miami
5 Yrs Experience
Licensed in FL
Florida International University School of Law

Miami-based duly licensed attorney and customs broker with significant experience in various types of supply chain business agreements, as well as experience in entertainment law.

Jose P. on ContractsCounsel
View Jose
Member Since:
February 13, 2021

Jose P.

Partner
Free Consultation
Get Free Proposal
San Antonio, Dallas
23 Yrs Experience
Licensed in TX
University of Pennsylvania

I am a corporate lawyer with expertise working with small businesses, venture capital and healthcare. Previously, I worked at large law firms, as well as head attorney for companies. I graduated from Harvard College and University of Pennsylvania Law School. I speak 5 languages (Spanish, French, Italian and Russian, plus English), visited over 60 countries, and used to compete in salsa dancing!

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call