Forming a Limited Liability Company (LLC) is a big milestone—it gives you legal protection, legitimizes your business, and sets the stage for growth. But there’s one step many new business owners overlook: creating an Operating Agreement.

Think of the Operating Agreement as your LLC’s playbook. It outlines how your business runs, who owns what, how profits are shared, and what happens when someone wants to leave. Even if you’re the only member of your LLC, skipping this document could cause problems down the road. In some cases, it could even put your limited liability protection at risk.

What Is an LLC Operating Agreement?

An Operating Agreement is a legal document that outlines how your LLC will operate. It spells out the ownership structure, management roles, rules for decision-making, and financial processes. While not always required by law, it’s considered a foundational document for every LLC.

Key purposes of an Operating Agreement:

• Establishes the rules and structure for your business
• Defines the responsibilities and rights of each member
• Prevents misunderstandings and disputes
• Strengthens your LLC’s legitimacy in the eyes of courts and banks

Without one, your LLC is subject to your state’s default laws—which may not reflect how you actually want your business to run.

Is an Operating Agreement Required?

Not in every state, but some states do require it, especially for multi-member LLCs. States like California, New York, and Missouri legally require LLCs to create an Operating Agreement (though they don’t always require it to be filed).

Even when it’s not required, having one on hand is still a best practice—especially if you want to:

• Open a business bank account
• Secure a loan or investment
• Clearly separate personal and business activities
• Protect your personal assets in court

Why You Need One—Even If You’re a Solo LLC

If you’re the only member of your LLC, you might think an Operating Agreement is unnecessary. But having this document can still protect you in several important ways.

Benefits for single-member LLCs:

• Proves you’re a separate entity: Courts will take your LLC more seriously if you’ve documented how it operates.
• Establishes rules for successor ownership: What happens if you’re unable to manage the business?
• Clarifies your intentions: Especially useful for estate planning and financial decisions.

In short, a one-person LLC without an Operating Agreement might look a lot like a sole proprietorship in the eyes of a judge—which defeats the whole purpose of forming an LLC in the first place.

What to Include in an LLC Operating Agreement

There’s no one-size-fits-all template, but here are the key sections most agreements should include:

1. Basic Business Information

• LLC name and principal business address
• Purpose of the business
• Formation date and state of registration

2. Member Information and Ownership

• Names and addresses of all members
• Percentage of ownership for each member
• Capital contributions (how much money/property each member invested)

3. Management Structure

• Member-managed or manager-managed
• Duties and powers of managers/members
• How decisions will be made (unanimous, majority, etc.)

4. Profit and Loss Distribution

• How profits and losses will be split
• When distributions will be made
• Whether compensation is paid to members/managers

5. Voting Rights and Procedures

• How votes are weighted (e.g., based on ownership percentage)
• What actions require a vote
• What constitutes a quorum

6. Rules for Adding or Removing Members

• Admission of new members
• Transfers of ownership interest
• Exit procedures if someone leaves the LLC or passes away

7. Dissolution and Winding Up

• What triggers dissolution (e.g., majority vote, court order)
• How remaining assets will be distributed
• How to notify the state and settle debts

8. Signatures

Every member should sign and date the agreement—and ideally have it notarized or witnessed for added credibility.

Where to Get an Operating Agreement

You don’t need a fancy lawyer (although one can help with complex agreements). Here are your main options:

• Free or low-cost templates: Found on legal websites like Rocket Lawyer, LegalZoom, and NOLO
• Attorney-drafted: Best for high-stakes businesses or multi-member partnerships
• Business formation services: Some offer Operating Agreements as part of their packages

Tip: Avoid generic templates that don’t match your state’s rules or your business type. Always read and customize the agreement to reflect your actual structure and intentions.

Can You Change Your Operating Agreement Later?

Absolutely. Your business will grow and evolve, and your Operating Agreement can (and should) evolve with it. Just be sure to follow the amendment rules you outlined in the original document—typically requiring a vote or written consent of all members.

Common reasons to amend:

• Adding or removing a member
• Changing profit distribution percentages
• Switching management structures
• Updating voting or dissolution procedures

Don’t Skip the Operating Agreement

Whether you’re a solo founder or launching with partners, an LLC Operating Agreement is more than just paperwork—it’s your business’s rulebook, safety net, and insurance policy against disputes and legal confusion.

Skipping this step leaves your LLC at the mercy of default state laws—and those laws may not protect you or reflect how you want your business to operate. Taking the time to create a clear, well-written Operating Agreement is one of the smartest moves you can make as a new business owner.

So don’t leave it on the to-do list. Put your LLC’s policies in writing and build your business with clarity, confidence, and control.