How to Write an LLC Operating Agreement

An LLC operating agreement is the internal rulebook for your limited liability company. It records who owns the LLC, how much each member put in, how profits are split, who makes decisions, and what happens when someone leaves or the company closes. Even where the law does not require one, having an operating agreement is one of the most important things you can do after forming an LLC.

Our free LLC operating agreement template is member-managed and covers the sections below.

Why every LLC should have one

• It overrides the default state rules that otherwise decide things for you;
• It helps preserve your limited liability by showing the LLC is a real, separate entity;
• It prevents disputes by writing down what the owners agreed;
• Banks, investors, and partners often ask to see it.

1. Formation details

Start with the LLC's legal name, the state of formation, the principal address, the registered agent, and the business purpose. These tie the agreement to the entity you registered.

2. Members, contributions, and ownership

List each member, what they contributed (cash, property, or services), and their ownership percentage. Ownership is often — but not always — proportional to contributions. Be explicit, because this drives voting power and profit sharing.

3. Profit and loss allocation

State how profits and losses are divided (commonly by ownership percentage) and how and when distributions are made. If you want to split profits differently from ownership, spell that out clearly here.

4. Management and voting

In a member-managed LLC, the owners run the business together. Define how decisions are made — which ones need a simple majority, which need unanimous consent — and how voting power is calculated. If you would rather appoint managers to run things, you want a manager-managed structure instead.

5. Transfers, buyouts, and new members

Decide what happens if a member wants to sell their interest, dies, or becomes disabled. Restrictions on transferring interests — and buyout rights — keep ownership from ending up in unexpected hands. This is one of the most valuable parts of the whole document.

6. Dissolution

Explain how the LLC can be wound down, how remaining assets are distributed after debts, and what events trigger dissolution. Planning the ending while everyone is on good terms saves enormous trouble later.

7. Have every member sign

An operating agreement works only if all members sign it. Electronic signatures make this easy when owners are in different places — each member signs online and everyone gets the same executed copy with an audit trail. For a multi-party document like this, sequential or parallel signing keeps things organized.

Disclaimer: This article is for general informational purposes only and is not legal or tax advice. LLC rules vary by state; consult a qualified lawyer or accountant for multi-member LLCs or complex ownership.