LLC Operating Agreement by State

What an LLC operating agreement is — and when you need one

An operating agreement is the internal contract of a limited liability company. It is signed by the members (the owners) and covers the questions the articles of organization leave open: who owns what percentage, who makes decisions, how money comes in and goes out, and what happens when a member leaves, dies, or wants to sell. Unlike the articles, it is not filed with the state — it lives in the company’s records.

Every state has an LLC act with default rules that apply whenever the members have not agreed otherwise. The operating agreement is how you replace those defaults with terms you actually chose. That is why it matters even in the large majority of states where it is optional: without one, the statute decides how profits are split, who can bind the company, and what a departing member is owed. You should have one from day one if the LLC has more than one member, if members contributed unequal amounts, if some members work in the business and others only invested, or if you plan to open a business bank account or take a loan — lenders and banks routinely ask for it.

A single-member LLC still benefits from a short agreement. It records that the company is a separate entity with its own rules, which supports your limited liability if a creditor later argues the LLC is just your alter ego, and it names who takes over if you become incapacitated.

What it must include, clause by clause

No statute prescribes a fixed list of clauses, but a usable agreement answers each of the following. Each clause exists to override a specific default rule or to prevent a specific dispute.

• Company details. Legal name exactly as filed, state of formation, principal office, registered agent, and purpose. This ties the agreement to the entity on file and avoids a mismatch that a bank or court could seize on.
• Members and ownership percentages. Each member’s name, address, and membership interest. State the percentage explicitly rather than implying it from contributions — the two are often not the same.
• Capital contributions. What each member put in (cash, property, or services), its agreed value, and whether members can be required to contribute more later. The agreed value matters because many state defaults allocate profits by contribution value.
• Allocation of profits and losses, and distributions. How profits are shared and when cash is actually paid out. This is the clause that most directly replaces the statutory default (see the table below: some states default to equal shares, others to contribution value). Add a tax-distribution provision so members can cover taxes on allocated income even in years the company retains cash.
• Management structure. Member-managed (all owners run it) or manager-managed (one or more managers, who may or may not be members). Name the managers, list the decisions that need a member vote, and set the voting threshold — majority by interest, majority by headcount, or unanimous — for major actions such as admitting a member, borrowing, selling major assets, or amending the agreement.
• Authority to bind the company. Who can sign contracts and open accounts, and any dollar limit above which approval is required. This protects the members from one person committing the company unilaterally.
• Meetings and records. Whether meetings are required, how notice is given, whether written consent can replace a meeting, and which records the company keeps and where. Keeping records is also part of maintaining the liability shield.
• Transfers of membership interests. Whether a member can sell or give away an interest, and whether the other members get a right of first refusal. Without this clause, an outsider could acquire an economic interest in your company.
• Withdrawal, death, and buyout. What happens when a member leaves, dies, divorces, or goes bankrupt: whether the company or the remaining members buy the interest, how it is valued, and how it is paid. Agreeing on a valuation method now avoids the most expensive kind of LLC dispute later.
• Dissolution. The events that end the company, who winds it up, and the order in which assets are paid out (creditors first, then members).
• Amendment, governing law, and signatures. How the agreement is changed, which state’s law governs (normally the state of formation), and a signature block for every member.

How to complete and sign it

• Start from your filed articles. Copy the legal name, formation date, and registered agent exactly as the state has them.
• Agree the numbers before you draft. Ownership percentages, contribution values, and the profit split should be settled among the members first; the document only records the deal.
• Choose management and voting rules deliberately. Decide member- or manager-managed, then list which decisions need more than a simple majority.
• Fill in the template for your state. Each state page on this site cites the state’s LLC act and its default rules, so the agreement addresses the defaults that actually apply to you.
• Have every member sign and date it. Signatures of all members are what make it the company’s agreement. Electronic signatures are generally acceptable for private contracts; a written and signed document is the safest form everywhere, and in the states listed as “written only” in the table it is the only form the act recognizes.
• Notarization and witnesses. An operating agreement is a private contract; notarizing or witnessing the signature page is optional and serves only as evidence of execution.
• Keep it with the company records. Do not file it with the state. Store the signed original with the articles, the EIN confirmation, and the member ledger; give each member a copy; and attach any later amendments.

Common mistakes

• Relying on the state default profit split without knowing what it is. Two members who contributed $90,000 and $10,000 get equal shares under a per-capita default and a 90/10 split under a contribution-value default. Write the split you want.
• Leaving ownership percentages implied. “We’ll split it fairly” is not a clause. State the percentages.
• No buyout or valuation method. When a member leaves, the argument is almost always about price. Agree a formula (book value, appraisal, or a fixed multiple) while everyone is still friendly.
• Using a multi-member template for a single-member LLC, or vice versa. Voting, meetings, and transfer clauses written for several members read as nonsense with one — and a single-member template omits the protections co-owners need.
• Not signing it, or not updating it. An unsigned draft in a folder is not an agreement. When a member joins or leaves, or the split changes, sign a dated amendment.
• Contradicting the articles. If the articles say manager-managed and the agreement says member-managed, you have created a dispute. Align them or amend the articles.
• Ignoring the agreement in practice. Commingling funds, skipping the votes the agreement requires, and not keeping records undermine the separateness the agreement is supposed to prove.

Related documents

• LLC operating agreement requirements by state — the statutory rule for each state, with citations.
• Independent contractor agreement — for people who work for the LLC without becoming members or employees.
• Non-disclosure agreement (NDA) — to protect company information shared with prospective members, investors, or vendors.
• Service agreement — for the LLC’s contracts with clients.
• Promissory note — when a member lends money to the company instead of contributing capital, document it as a loan.
• Invoice — for billing in the company’s name once it is operating.

Frequently asked questions