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

Published by Jon Morgan | Co-Founder & Chief Editor

Last updated: August 31, 2026

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Most states don't require an LLC to have a written or oral operating agreement. Only Maine, Missouri and New York require one. New York is the only state that requires it in writing.

Everywhere else, the state's own LLC act steps in the moment you skip one. It runs your voting, profit splits and buyout terms instead of yours. Grab our free member-managed or manager-managed template below.

Those default rules rarely match what founders actually want. A state default might split profits by ownership share instead of hours worked. An operating agreement lets members swap in terms they actually chose, in writing, before a fight forces the question.

Quick Summary

Operating Agreement Requirements by State

Only three states legally require an LLC to have an operating agreement: Maine, Missouri and New York. New York goes furthest. It requires members to adopt a written operating agreement within 90 days of filing.

Missouri allows an oral agreement for a multi-member LLC. It requires a written one for a single-member LLC. Maine sets no fixed form or deadline at all.

New Mexico is a special case worth flagging on its own. The state doesn't require an LLC to have an operating agreement, but its own statute defines the term itself as a written document only.

Mississippi backs up its "No" a different way. The state's own annual filing asks LLC owners if they've put an agreement in writing, which shows lawmakers see it as optional.

Every other state, Delaware included, treats a written, oral or implied operating agreement as equally valid, with one exception. Louisiana allows an oral agreement for a multi-member LLC, but requires a single-member LLC's agreement to be written. The table below gives you the exact statute for your state.

"Required" here means the state's own LLC act mandates one. It isn't a judgment call about whether writing one is a good idea.

Even where the law stays silent, skipping the agreement leaves your LLC running on the state's own default terms instead of ones you chose. That's why we recommend one no matter what your state's column below says.

How to Get an LLC Operating Agreement

You've got a few options here: 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. That includes what happens if someone exits.

A registered agent can also handle this for you. They'll draft the agreement and send it to every member for signatures. Formation services, including ZenBusiness and Northwest, also bundle a template with their LLC formation services.

A business attorney costs more, but earns that cost back on a messy ownership structure. Bring one in when members hold unequal stakes, when outside investors are involved, or when you're pairing an operating agreement with a buy-sell agreement.

A template gets you moving fast. Download our free member-managed operating agreement template if every owner runs the business day to day. Use our free manager-managed operating agreement template instead if you've appointed one or more managers to run it.

Treat either template as a starting point instead of a finished document. Adjust it for your state, your membership, your capital, your voting rules, your tax setup and your signature rules before you call it final.

Once every member signs, keep the agreement somewhere all members can reach it. Give your registered agent and your accountant a copy too. A signed agreement that only one member can find isn't doing its job.

A simple single-member agreement usually takes an afternoon to fill out and sign. A multi-member agreement with negotiated buyout terms and unequal votes takes longer. Every member needs to read and agree to the exact wording first. Build in time for that back and forth instead of rushing signatures at the last minute.

What an LLC Operating Agreement Should Include

A complete operating agreement covers the full structure and day-to-day operation of the business. It leaves nothing to assumption. Whether you're running a single-member or multi-member LLC, the sections below cover the ground every agreement should have. Use them as a checklist against whatever draft or template you start from.

Not every section needs the same depth. A single-member LLC can move quickly through voting and meeting rules, since there's nobody to vote against. It still needs the ownership, record-keeping and dissolution sections spelled out.

1. LLC Name and Formation Details

Start with the basics of how your LLC is identified, legally and on paper. That means the exact legal name with the LLC tag, the state of formation, a general purpose clause and any DBA names you use.

Add the address of your main place of business too. Getting this section right upfront prevents mix-ups down the line, especially if you ever register to do business in another state under a slightly different name.

Match every detail to what's on your formation document. A mismatch between your operating agreement and your Articles of Organization is the kind of error a bank or title company will catch and ask you to fix.

Note your business purpose broadly enough to cover where the company is likely to grow. A purpose clause written only for your first product line can force an amendment the moment you add a second one.

List any DBA or trade names the LLC operates under alongside the legal name. Note where each one is registered. Customers and vendors often know the business only by the trade name, so both belong in the same document.

Note the effective date of the LLC too, and the length of its term if it isn't meant to run forever. Most LLCs run until dissolved, but some are formed for a single project with a clear end date.

2. Ownership Structure and Percentages

Lay out the ownership setup clearly. Show how each member's capital ties to their share of ownership, profits and losses. List the names, addresses, job titles, duties and ownership percentages for every member.

Spelling out ownership percentages this way protects each member's voting power and profit share from getting read differently later. It also gives banks and investors a document they can actually check against your books.

Note how each contribution was made too: cash, equipment, property or work done in exchange for a stake. Put a dollar value on anything that isn't cash, so there's no argument later about what it was worth.

Revisit this section any time someone adds capital or a new member buys in. Ownership shares that made sense at formation can look very different two funding rounds later. The agreement should track that history instead of freezing it at day one.

3. Voting Rights and Decision-Making Powers

Voting is where vague language causes the most friction. Spell out the process, including whether you're using a secret or open ballot, before a real decision forces the question.

Most agreements pick one of two setups: votes proportional to ownership, so a bigger stake carries more weight, or one vote per member no matter the stake. Either works. Just say which one applies, and to which decisions.

List which decisions need every vote instead of just most of them. Selling the company, taking on big debt and adding a new member are common picks for a higher bar.

Address deadlock too: what happens when the vote splits evenly and neither side will budge. A tiebreaker clause, a cooling-off period or a buyout option for the losing side all beat leaving the company stuck.

Write these rules down before a real vote ever splits. Members agree far more easily on a fair process when nobody yet knows which side of a future fight they'll be on.

4. Profit and Loss Distribution

Spell out exactly how profits and losses get divided among members. Say whether that split matches ownership share or something else, like hours worked or capital put in.

You can also set payouts as a fixed default or require every member's sign-off before any change. Some agreements hold off on payouts until the business has posted a profit for a set stretch, instead of paying out the moment revenue arrives.

Cover losses the same way you cover profits. A member who put in more capital usually expects to absorb a bigger share of a loss too. That split should mirror the profit formula unless the agreement says otherwise.

Decide how payouts get paid too: cash, a check or a bank transfer, and on what schedule. Some LLCs pay out every quarter. Others pay only when a member asks. The agreement should say which one applies, so nobody's left guessing.

Tax withholding matters here too. Some LLCs hold back a portion of each payout to cover a member's estimated tax bill, and the agreement should spell out whether yours does.

5. Management Structure

State whether your LLC is manager-managed or member-managed. Make sure the agreement matches whichever setup you've actually chosen, since the two work very differently day to day.

For a manager-managed LLC, describe each manager's job, pay and duties. For a member-managed LLC, cover the same ground for members instead. You generally don't need to define individual manager titles.

Say who can sign contracts, hire staff or spend company money on the LLC's behalf. Put a cap on what any one person can approve without a vote. That way nobody commits the company to more than the others agreed to.

Note that management setup and ownership share aren't the same thing. A member with a small stake can still hold a manager title with real day-to-day power, as long as the agreement says so.

6. Record-Keeping Requirements

Require records of key business decisions, meeting notes and anything else that shows how a call actually got made and who made it.

Pair that with money records covering income, spending and bank transfers, plus ownership records tracking each member's stake and capital over time. Keep legal and tax papers in the same system, so nothing goes missing when you need it.

Set a rule for how long records stay open to members. Most agreements let any member check the books on reasonable notice. That heads off a fight over whether someone is being kept in the dark.

Name who's in charge of keeping the records current, whether that's a member, a manager or an outside bookkeeper. Records that exist on paper but nobody updates cause the same problems as records that were never kept at all.

7. Member Change Procedures

Cover what happens when membership shifts, whether someone new comes in, an original member leaves or ownership passes to an heir.

If a new member joins, spell out how their capital gets treated and what ownership share they get in return. If a member exits or dies, address what happens to their share of the business. These terms carry real money consequences, so don't leave them to a future conversation.

Set a buyout formula ahead of time: a fixed multiple of revenue, a paid appraisal or a price you update every year. Require a departing member to offer their stake to the remaining members first, before they sell to an outsider.

Build in a waiting period between a buyout notice and the actual payout date. Both the LLC's cash flow and the departing member's payout benefit from having time to line up money before it changes hands.

8. Meeting Requirements

Outline how meetings actually work: scheduling, notice and how decisions get made once everyone's in the room, whether that room is physical or virtual.

Say how often regular meetings happen. Set the conditions members need to call a special one, including who has the power to call it and how much notice is required.

Define what counts as a quorum, usually a majority of members, so a decision can't get made without enough people present.

Decide how members get notified too: email, mail or a shared calendar invite, and how many days ahead of a meeting that notice has to go out. Write it down, so nobody can claim they were never told.

Allow remote attendance by phone or video call, and say so directly. A meeting rule written only for members in the same room can strand a remote member's vote the moment travel isn't an option.

9. Operational Rules and Dissolution

Tie together the day-to-day mechanics of running the LLC: legal duties, business hours, office location, money matters, conflict resolution and how the agreement itself gets amended.

Address what happens to the management setup if someone exits, and what conditions trigger the end of the LLC. Most agreements let members set their own triggers instead of relying only on whatever the state defaults provide.

Name who handles winding up the business once that starts: paying debts, closing accounts and dividing whatever's left among members. Add a severability clause too. That way a court striking down one part of the agreement doesn't take the rest of it down with it.

Set your own amendment bar as well: a simple majority, or a bigger share of ownership, so you're not stuck waiting on every last signature every time a small change comes up.

Common LLC Operating Agreement Mistakes to Avoid

Even a well-meant operating agreement can create problems if you draft it carelessly. These three mistakes come up more than any others.

1. Using a generic template without customizing it: Default profit-sharing clauses often don't match actual capital put in, which can trigger member fights once revenue starts flowing.
2. Leaving voting and buyout terms vague: An agreement that never says how a tie gets broken, or what a departing member's stake is worth, pushes that fight into a lawyer's office instead of a signed page.
3. Never updating it after membership changes: An agreement that still lists a member who sold out or a manager who quit two years ago creates real risk. Amend it every time ownership or roles shift.

Each of these mistakes shares the same root cause. Members treat the agreement as paperwork to file away instead of a document they actually reread when something goes wrong. Review it once a year, even when nothing has changed, so you catch a gap before a fight forces the question.

A short annual check-in works well for this, even ten minutes at year-end. Compare the agreement against your current owner list, your current managers and any handshake changes nobody wrote down yet.

Why Your LLC Needs an Operating Agreement

An operating agreement exists to spell out exactly how members will run the company. It covers what happens when things get complicated: someone leaves, debts pile up or owners disagree.

All members and managers should sign it before you treat it as a working document, so everyone knows what they agreed to.

Without one, you're stuck running the company entirely under your state's default rules. That's true even where those rules clash with what the members actually intended. Writing your own terms means a fight gets settled by the page you signed instead of a statute nobody read closely at formation.

Courts and creditors also look at how seriously you treated the LLC as its own entity. That matters when they decide whether to hold you personally liable for its debts.

A signed operating agreement, kept alongside your other business records, is part of that proof. It matters most for a single-member LLC that has no other owners to point to.

The agreement also works as a record of who owns what. That matters when you sell your stake, bring in a new investor, or need to show a bank or a court exactly how ownership breaks down.

Tax setup is worth matching too. By default, the IRS treats a single-member LLC as a disregarded entity and a multi-member LLC as a partnership for federal income tax purposes [1].

Members who want corporate tax treatment instead have to file Form 8832 to elect it [2]. Recording which choice the members made, and why, keeps that decision from getting relitigated later.

A well-drafted agreement also spells out vesting terms, buyout formulas and exit rights that an investor's term sheet will ask about anyway. Working those terms out with your co-founders early tends to produce better numbers for everyone at the table. Negotiating them for the first time under investor pressure rarely does.

Add a dispute resolution clause while everyone's still on good terms. Name mediation or arbitration as the first step, before either side can sue. That keeps a fight out of court and keeps the legal bill from swallowing whatever the dispute was actually about.

Plan for a member's death too. Without a clear succession clause, a deceased member's heirs can end up with a say in the business they never asked for and never worked in. Say in advance whether heirs inherit a vote, a payout or just a right to future profits.

FAQs

References:

1. https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies
2. https://www.irs.gov/forms-pubs/about-form-8832