An operating agreement is a private legal document between LLC members (owners) that governs how the business operates. Unlike the Articles of Organization — which are a public filing with the state — the operating agreement stays internal. It's the contract between you and any co-owners, and between the LLC and its own rules.
Why every LLC needs an operating agreement
Without an operating agreement, your LLC is governed entirely by your state's default LLC statutes — and those defaults were written for a generic LLC, not your specific situation. The defaults can surprise you: in many states, profits are split equally among members regardless of how much each invested; decisions require unanimous consent of all members; a member's death or departure triggers automatic dissolution.
- Proves the LLC is a real, separate entity — critical for maintaining liability protection
- Required by most banks to open a business checking account
- Required in California, Delaware, Maine, Missouri, and New York
- Overrides unfavorable state default rules (profit splits, voting, dissolution)
- Establishes what happens if a member dies, becomes incapacitated, or wants to leave
- Required for S-corp election paperwork (Form 2553 process)
- Protects minority members from being frozen out by majority owners
Single-member vs multi-member: how they differ
A single-member LLC operating agreement is much simpler — you're writing rules for a company you fully own and control. The main purpose is to establish that the LLC is a separate entity from you personally (veil protection) and to satisfy the bank.
A multi-member LLC operating agreement is substantially more complex. It needs to answer the hard questions now, before anyone disagrees: What if a member wants to sell their share? What if a member stops contributing? What if there's a deadlock vote? Can a member be forced out? Who makes day-to-day decisions vs. who votes on major decisions? Get these answers in writing while everyone still likes each other.
What to include in a single-member LLC operating agreement
- LLC name and state of formation
- Effective date and principal office address
- Registered agent name and address
- Name of the single member (you) and your ownership percentage (100%)
- LLC purpose (can be broad: "any lawful business purpose")
- Management structure: member-managed (the default for solo LLCs)
- Tax classification: disregarded entity (default) or elected S-corp/C-corp
- How profits and losses are allocated (100% to you)
- How distributions are made (member's discretion)
- What happens if the member dies or becomes incapacitated (succession plan)
- How the LLC can be dissolved
- Amendment process
- Signatures and date
What to include in a multi-member LLC operating agreement
- All of the above, applied to multiple members
- Each member's name, ownership percentage, and initial capital contribution
- Voting rights: by ownership percentage, or equal vote per member?
- Decisions requiring unanimous consent vs. majority vote vs. supermajority
- Management structure: member-managed or manager-managed (who actually runs it day-to-day)
- Salary or compensation for managing members (if any)
- Profit distribution schedule and formula — when and how distributions are made
- Transfer restrictions: can a member sell their share to anyone, or does the LLC have right of first refusal?
- Buy-sell provisions: what triggers a buyout, and how is the price determined?
- What happens if a member dies, divorces, goes bankrupt, or becomes disabled
- How to add new members
- Non-compete and confidentiality provisions (if relevant)
- Deadlock resolution: what happens when a 50/50 LLC can't agree
- Dissolution events and winding-up process
Free templates vs. attorney-drafted: which do you need?
For a single-member LLC with simple operations, a free template is usually fine. The document is mostly boilerplate that establishes the LLC's existence as a separate entity. The IRS and your bank don't need anything sophisticated — they just need to see that you have one.
For multi-member LLCs, a free template is a starting point, not a finish line. The clauses that matter — buy-sell provisions, forced buyout pricing, deadlock resolution, transfer restrictions — are where boilerplate breaks down and where disputes eventually happen. Attorney fees of $500–$2,000 for a properly drafted multi-member agreement are almost always worth it compared to the cost of a dispute down the road.
- DIY template is OK: single-member LLC, no employees, simple operations, no outside investors
- Get an attorney: multi-member LLC, unequal ownership percentages, outside capital, complex profit-sharing arrangements, or any situation where members have different roles/contributions
- Attorney is essential: 50/50 partnerships, LLCs with investors, LLCs holding real estate, any LLC in California (where the courts are more likely to look at operating agreement details)
States that legally require an operating agreement
Only five states require an operating agreement by law: California, Delaware, Maine, Missouri, and New York. The others strongly encourage it but don't mandate it. In required states, the consequence of not having one isn't usually a fine — it's that state default rules govern your LLC completely, often in ways you wouldn't want.
| State | Filing fee | Annual report | Notable tax | |
|---|---|---|---|---|
| California CA | $70 | $20 Statement of Information | The $800 minimum franchise tax is the single biggest cost of running a CA LLC. | Guide → |
| Delaware DE | $110 | No annual report for LLCs — but a $300 annual franchise tax instead | No state sales tax. | Guide → |
| Maine ME | $175 | $85 annual report | Maine still requires paper filings for most LLC actions, which slows everything down. | Guide → |
| Missouri MO | $50 | $0 | No annual report and no franchise tax — once your LLC is formed, ongoing state-level cost is essentially zero (you still owe income tax on profits). | Guide → |
| New York NY | $200 | $9 biennial statement | The publication requirement is New York’s biggest hidden cost — and there’s no way to legally skip it. | Guide → |
Common operating agreement mistakes to avoid
- Not having one at all — courts use this as evidence the LLC isn't a real separate entity
- Signing it but not actually following it — if your behavior contradicts the operating agreement, the document loses its protective value
- Omitting a buy-sell provision in a multi-member LLC — the most common source of expensive disputes
- Using a template from the wrong state — operating agreements should reference your state's LLC statutes
- Not updating it when ownership changes — when a member joins, leaves, or changes their percentage, amend the agreement
- Confusing member-managed and manager-managed — the default is member-managed, but if one partner is running day-to-day operations, a manager-managed structure (with the operating member as Manager) is often cleaner
- Missing signatures — have every member sign and date it, and keep a copy in your LLC records
How to sign and store your operating agreement
Operating agreements don't get filed with the state — they stay internal. Have every member sign a physical copy (or use a e-signature service like DocuSign). Store the original in a designated "LLC records" folder, along with your Articles of Organization, EIN Confirmation Letter (CP 575), and any meeting minutes or resolutions you create. Banks and accountants may ask for it at various points.
What to do after you have an operating agreement
- Open a business bank account — bring the operating agreement, Articles of Organization, and EIN letter
- Get your EIN if you haven't already (free at irs.gov/ein, takes 10 minutes)
- File your FinCEN BOI report within 30 days of LLC formation
- Register with your state Department of Revenue for sales tax or withholding if applicable
- Set up separate bookkeeping — QuickBooks, Wave, or even a dedicated spreadsheet
- Review and amend the operating agreement any time membership or ownership changes
Don’t want to file yourself? Northwest Registered Agent files your LLC for $39 + state fee and acts as your registered agent the first year free.
Frequently asked questions
Is an operating agreement required for an LLC?
Only in California, Delaware, Maine, Missouri, and New York. The other 45 states don't legally require one. But every LLC should have one anyway — banks require it to open business accounts, it protects your liability shield, and it prevents state default rules from governing your LLC in ways you might not want.
Can I write my own operating agreement?
Yes. For a single-member LLC with simple operations, a free template (adapted to your state) is usually sufficient. For multi-member LLCs, especially those with unequal ownership, outside investment, or complex profit-sharing, an attorney-drafted agreement is worth the $500–$2,000 cost.
Do I need to file my operating agreement with the state?
No. Operating agreements are private internal documents. They're never filed with the Secretary of State. You sign them, keep a copy in your LLC records, and share them with your bank, accountant, or attorney when needed.
What happens if my LLC doesn't have an operating agreement?
Your LLC is governed entirely by your state's default LLC statutes. Those defaults are often unfavorable: profits may be split equally regardless of capital contribution, all decisions may require unanimous consent, and a member's death or departure may trigger automatic dissolution. In court, the absence of an operating agreement is also used as evidence that the LLC wasn't being run as a legitimate separate entity — which can undermine your liability protection.
Can a single-member LLC have an operating agreement?
Yes, and you should have one. A single-member LLC operating agreement is simple — it establishes that the LLC is a real separate entity, documents your 100% ownership, and specifies basic governance rules. Most banks require one to open a business checking account, even for solo owners.
How much does an operating agreement cost?
Free if you use a template and draft it yourself. $500–$2,000 if you hire an attorney — more for complex multi-member structures or LLCs with significant assets. Formation services like Northwest, ZenBusiness, and LegalZoom include basic templates, though they're generic and not state-customized. For most single-member LLCs, the free template route is fine.
What is a manager-managed LLC vs. member-managed?
In a member-managed LLC, all owners (members) participate in day-to-day decisions — the default in most states. In a manager-managed LLC, the operating agreement designates one or more Managers who run the business, while other members are passive investors. Manager-managed structures are common when: one partner is active and others are investors; you want to limit certain members' authority; or you're raising outside capital.
Does my operating agreement need to be notarized?
No — in all 50 states, an LLC operating agreement is valid with member signatures alone. Notarization is not required. Some members choose to notarize for extra evidentiary weight, but it's optional.