LLC Operating Agreement

The operating agreement is the main governing document of an LLC, subordinate only to the articles of organization. The operating agreement defines how the LLC will run itself.

Contents of an Operating Agreement

An LLC operating agreement typically contains:

1. Introductory matters: formation, regulation of internal affairs, limitation of authority of a member, power to contract debts, use of legal company name, registered office/agent, record-keeping
2. Start-up matters: adoption of seal, maintenance of record book, establishment of bank accounts, reimbursement for organizational expenses, and LLC certificate
3. Members: initial members, capital contributions and withdrawals, membership interests, admission of additional members, certificates of membership interest, and limitations of member liability and responsibility
4. Management and control of the business including elections, annual/special meetings, officers, managers, and powers
5. Capital accounts
6. Allocations of net profits, net losses, and distributions
7. Accounting, records, and reporting
8. Transfer and assignment of interest
9. Dissolution, winding up, and disassociation events
10. Indemnification

An LLC is a flexible business structure that lacks many of the formalities of a corporation. Nevertheless, your LLC is expected to run itself in compliance with the rules defined in your state corporations code. The operating agreement has the power to overrule certain state formalities and to establish others.

If your LLC were ever to get into legal and financial trouble, an operating agreement reinforces the limitation of member liability. For this reason even single-member LLCs should have an operating agreement.

If there were ever a dispute amongst the LLC members, the Operating Agreement would be examined to attempt to resolve it. It is like a partnership agreement. Can two members out-vote one? How are profits allocated and distributed? Adopting a thorough operating agreement resolves disputes quickly.

Key Takeaways:

1. The operating agreement is the document that your LLC creates to govern itself
2. The operating agreement defines the formalities of the LLC, such as an annual meeting

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