What Is an Operating Agreement?
An Operating Agreement is a legal document that defines how your LLC is structured, managed, and operated. It sets out the rules that govern your business — from ownership percentages and profit distribution to management responsibilities and decision-making authority.
Think of it as the internal constitution of your LLC.
Why Does My LLC Need One?
Even if your state doesn't legally require an Operating Agreement, there are several important reasons to have one:
1. Liability Protection
Without an Operating Agreement, a court may find it harder to treat your LLC as a separate legal entity. This could mean your personal assets aren't fully protected — a concept known as "piercing the corporate veil."
2. Avoiding Default State Rules
If you don't have an Operating Agreement, your state's default LLC rules apply. These default rules may not match what you and your co-members actually agreed to — especially around profit sharing, voting rights, and member exits.
3. Defining Roles and Responsibilities
An Operating Agreement clearly spells out who manages the business, how decisions are made, and what happens if a member wants to leave or transfer their interest.
4. Banking and Financing
Many banks require a copy of your Operating Agreement before opening a business bank account. It's also commonly requested by investors and lenders.
What Happens Without One?
Without an Operating Agreement:
- Your state's default LLC laws govern your business
- Profit may be split equally regardless of investment
- Any member may have authority to bind the LLC
- Member disputes have no predefined resolution process
- Your liability protection may be weakened
What Should It Include?
A well-drafted Operating Agreement typically covers:
- Company name, purpose, and registered agent
- Member names and ownership percentages
- Capital contributions
- Profit and loss distribution
- Management structure (member-managed vs. manager-managed)
- Voting and decision-making rules
- Transfer restrictions
- Dissolution procedures
Get Your Operating Agreement
LawBri provides attorney-reviewed Operating Agreements at a flat fee — delivered within 24–48 business hours with a plain-language Attorney Summary.