LLC Operating Agreement: What to Include (+ Free Template)

Published by Jon Morgan | Co-Founder & Chief Editor

Last updated: June 14, 2026

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A poorly drafted operating agreement can expose your personal assets, trigger member disputes, and create costly tax headaches.

After 9 years of consulting with over 150 LLC owners, I've seen these problems surface repeatedly, often tracing back to a weak or missing operating agreement.

In this guide, I'll break down every section a solid agreement must include, the clauses most owners overlook, and when it's worth hiring a professional instead of going the DIY route.

We also include a free member-managed LLC operating agreement template you can download and customize.

Quick Summary

What is the purpose of an LLC operating agreement?

The purpose of an LLC operating agreement is to spell out exactly how members will run the company, and what happens when things get complicated.

That means covering what happens if someone leaves, how debts get handled, and how disputes between owners get resolved. All members and managers need to sign it before it becomes a legal document. That signature matters, it means everyone knows what they're agreeing to.

Here's the thing: if you ever lose a member or hit a dispute, this agreement is what holds the business together.

"The most important function of an operating agreement is preventing state default rules from applying to your business. Without one, your state's LLC statutes control, and the default rules are rarely what members would actually choose for themselves."

- Thomas Howard, Business Lawyer & Consultant

It also outlines what would happen with your debts, who should take responsibility for them, and how to divide profits between owners.

How to get an LLC operating agreement

You've got a few options here. You can draft it yourself, hire a lawyer, or use a formation service.

If you go the DIY route, make sure what you write actually reflects how the business will run, including what happens if someone exits. A registered agent can also handle this for you, drafting the agreement and sending it out to all members for signatures.

You can also start with an LLC operating agreement template. Download our free member-managed LLC operating agreement template, then review each clause before signing so the document matches your ownership, voting, tax, and exit rules. Formation services like ZenBusiness and Northwest include free operating agreement templates with their LLC formation packages.

The free template is a practical starting point for a member-managed LLC. You will still want to adjust it for your state, member structure, capital contributions, voting thresholds, tax treatment, and signature requirements before treating it as final.

What an LLC operating agreement should include

An LLC operating agreement should cover the full structure and day-to-day operations of the business, nothing left to assumption.

Whether your business entity is a single-member LLC or a multi-member LLC, there are some default rules every operating agreement should have.

1. LLC name and formation details

The first section of your operating agreement covers the basics of how the LLC is identified, legally and on paper.

That includes the exact legal name with the LLC designation, state of formation, a general business purpose clause, any DBA names, details of name reservation or registration, and the address of the principal place of business. Getting this right upfront prevents identity confusion down the road.

2. Ownership structure and percentages

This section needs to clearly lay out the ownership framework, specifically, how each member's capital investment ties to their share of ownership, profits, and losses.

It should include the names, addresses, job titles, responsibilities, and ownership percentages for every member. Clearly outlining LLC ownership percentages makes sure each member's capital contribution, voting power, and profit share are accurately reflected, no gray areas.

3. Voting rights and decision-making powers

Voting structure is one of the sections I've seen cause the most friction when it's left vague. Your operating agreement needs to spell out the process, including whether you're using secret or open ballot methods.

Most agreements specify two approaches: one proportional to ownership (so a 40% shareholder carries more weight than a 10% shareholder), and another that gives each member one vote regardless of ownership size. You'll also want to define who has voting rights and what counts as a quorum. Don't skip this, it's the section members fight over when things go sideways.

4. Profit and loss distribution

Your operating agreement needs to spell out exactly how business and personal assets get distributed among members.

Distribution provisions can either be set as a default or require unanimous member consent before any changes are made. In some cases, it makes sense to restrict distributions until the business has been generating profit for a set period, rather than pulling money out the moment revenue starts coming in.

The IRS requires special allocations of profits and losses to have "substantial economic effect", a tax attorney can help ensure your distribution provisions won't be challenged [2].

Bottom line: vague distribution language is one of the fastest ways to create a member dispute once the money starts flowing.

5. Management structure

LLCs can be either manager-managed or member-managed, and your operating agreement needs to reflect whichever structure you've chosen.

For a manager-managed LLC, include information about each member's role, how they'll be compensated, and what their responsibilities are. For a member-managed company, you need similar information, but you don't need to detail specific managerial positions or individual duties.

6. Record-keeping requirements

This section needs to mandate documentation of key business decisions, meeting minutes, resolutions, and anything else that shows how calls were made.

Pair that with detailed financial records: income, expenses, and bank transactions. You'll also want ownership records that document each member's stake, capital contributions, and any changes over time. And don't overlook legal and tax documents, state filings, tax returns, and licenses all need a home here.

The section should also lay out a retention policy: what format records are kept in, how long they're held, and who has the right to access them. That last part matters more than most people realize. Transparent access rules prevent a lot of internal friction.

7. Member change procedures

This section covers what happens when membership shifts, someone new comes in, or an original member leaves.

If new members join, it needs to specify how their capital contributions are treated and what ownership percentage they receive. If a member exits or dies, the terms should address what happens to any business assets distributed to them. These provisions can have real financial consequences for everyone still in the business, so read them carefully.

I've seen this section glossed over during formation and become the source of major disputes years later. Don't rush it.

8. Meeting requirements

This section should clearly outline how meetings work, scheduling, notice requirements, and how decisions actually get made.

Specify how often regular meetings occur (annually, quarterly, etc.) and under what conditions special meetings can be called, including who has authority to call them and how much notice is required. Define what counts as a quorum, typically a majority of members, and spell out the voting thresholds for different types of decisions.

Also cover virtual meeting options, who's responsible for recording minutes, and where those records are stored. Set clear expectations around member participation and what happens if someone consistently doesn't show up.

9. Operational rules and dissolution

This section ties together the day-to-day mechanics of running the LLC, legal compliance, business hours, office location, financial processes, conflict resolution, and the process for amending the agreement itself.

It should also address what happens to the management structure if someone exits, and what conditions have to be met for a member to leave.

This is called "dissolution of the LLC." Dissolution can be triggered by disability, bankruptcy, or death of an LLC member. It covers what happens to remaining members and assets, and how any leftover debts, including tax liabilities, get handled.

3 common LLC operating agreement mistakes to avoid

Even a well-intentioned operating agreement can create serious problems if drafted carelessly. After reviewing hundreds of agreements, I've found 3 mistakes come up more than any others.

Mistake 1 - Using a generic template without customizing it

Default profit-sharing clauses often don't reflect actual capital contributions, which frequently triggers member disputes once revenue starts flowing.

Mistake 2 - Leaving key sections vague

Ambiguous language around voting rights or management authority gives courts room to apply state default rules instead of your intended terms.

Mistake 3 - Skipping the signatures

An unsigned agreement is essentially unenforceable, regardless of how well it's written.

Review every section carefully before signing, and if any provisions are unclear, bring in a business attorney. That review can cost a few hundred dollars, and save you tens of thousands.

Operating agreement requirements by state

Delaware, Missouri, and New York use the clearest mandatory operating-agreement language [3, 4, 5]. In most other states, the operating agreement is optional but still important because state default LLC rules control anything the agreement does not cover.

Once your operating agreement is signed, make sure your registered agent has a copy. See our Best Registered Agent Services comparison.

FAQs

References:

1. https://www.irs.gov/statistics/soi-tax-stats-partnership-statistics
2. https://www.law.cornell.edu/cfr/text/26/1.704-1
3. https://delcode.delaware.gov/title6/c018/sc02/index.html
4. https://revisor.mo.gov/main/OneSection.aspx?section=347.081
5. https://www.nysenate.gov/legislation/laws/LLC/417