Delaware LLC Operating Agreement (Guide + Free Template)

Atty. Danya Shakfeh
Published by Atty. Danya Shakfeh | Author
Last updated: May 24, 2024
FACT CHECKED by Lou Viveros, Growth & Transition Advisor
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Drafting a Delaware LLC operating agreement for your business is a safe way to navigate the challenging, unpredictable, and overlapping laws of business.

To help you understand the foundations of an operating agreement, we sought the help of our LLC-savvy attorneys leveraging decades of experience in the business sector.

We also dedicated three weeks to finding out how to write one from the ground up.

Here's everything you need to know about the Delaware LLC operating agreement.

Quick Summary

  • A Delaware LLC operating agreement is a legally binding document that sets forth rules that govern a limited liability company.
  • You need an LLC operating agreement in Delaware to preserve its status, add legitimacy to your entity, and protect against state default laws.
  • Delaware’s Court of Chancery has a storied reputation for its knowledgeable handling of corporate law matters, making it a preferred venue for business disputes, especially those concerning complex operating agreements and governance issues.
  • Drawing on my experience navigating corporate structures, Delaware stands out as a strategic hub for businesses, particularly LLCs.

Delaware LLC Operating Agreement Free Template

Download Member-Managed LLC Operating Agreement
Download Manager-Managed LLC Operating Agreement

Disclaimer: This template is offered for informational purposes only and is not intended as legal advice. We highly advise consulting a qualified attorney to confirm its suitability and accuracy for your specific needs. We assume no responsibility for any consequences arising from the use of this template.

We recommend reading our comprehensive article on the essential differences between member-managed and manager-managed LLCs before downloading our template.

What Is a Delaware LLC Operating Agreement?

Writing an operating agreement for Delaware LLC

A Delaware LLC operating agreement is a written agreement that establishes the rules governing the limited liability company.

The agreement outlines the LLC's objectives, operations, management, and provisions regulating the rights and obligations of its members.

Operating agreements benefit both multi-member and single-member LLCs.

For a single-member LLC, the agreement distinguishes between LLC operations and those of the owner, while multi-member LLC operating agreements include initial capital contributions, member responsibilities, and structural elements [1].

How to Write a Delaware Operating Agreement?

To write a Delaware operating agreement, you must gather all the LLC basic information, use a pre-structured form, or consult an attorney to draft the agreement from scratch.

Here are the important steps you must take when writing a Delaware LLC operating agreement: 

1. Define LLC Ownership

Reading an LLC ownership document

The first step when drafting a Delaware LLC operating agreement is to define its ownership.

The operating agreement should explicitly identify the owners of the business. Include their initial capital contribution and their proportion of ownership in the company.

Under ownership, the agreement should also specify distributions. The operating agreement may specify how and when distributions will be made and how and when economic gains and losses will be distributed among the members.

Distribution amounts and schedules may be decided upon at the management's discretion, mandated at predetermined intervals, or brought about by specific occurrences.

2. Define Management Structure

After setting up ownership, you should outline a management structure.

The limited liability company agreement should outline the management structure and be explicit about what is required to qualify as an LLC activity to avoid depending on default state laws.

Common management-related clauses in an LLC operating agreement include:

  • Appointment of the first members of management.
  • Policies or triggers for replacing or removing management.
  • The authority of management.
  • Restrictions on management's power, including the need for members to pre-approve certain actions if they represent a certain proportion of interests.

3. Describe Rights, Obligations, and Benefits

Describing rights obligations and benefits

The agreement should also outline the rights, obligations, and benefits of LLC members. This section should describe every member's rights and performance in the company's daily operations.

The agreement should also include voting rights, meeting requirements, and procedures.

Talk about who will be in charge of taking minutes, taking notes, or participating in special projects. Explain the voting method and the votes each member receives during any significant decision-making process.

4. Define Admission, Withdrawal, and Transfer of Member Interest

A member's ability to transfer their limited liability company interest should be outlined in the LLC operating agreement.

Similarly, the operating agreement may specify the procedure and acceptable grounds for a member's removal from the LLC before cancellation.

You must also include a right of refusal under a transfer of membership interest.

"A right of first refusal is frequently triggered by a permitted transfer or withdrawal, allowing the other members to purchase that particular interest under the operating agreement's conditions."
- Michelle Quinn, Limited Liability Company Attorney 

5. Outline LLC Dissolution Procedure

You must also agree on what should transpire if the firm is dissolved.

Give specific instructions on the administrative steps managing members should take in this situation and what they should do with the company's assets.

6. Provide a Severability Clause

The agreement should also conclude with a severability provision. A severability provision guarantees the validity of the other conditions, even if a specific phrase is invalid or unenforceable.

This clause ensures that the agreement will be generally enforceable and effective.

Why Do You Need an LLC Operating Agreement in Delaware?

Calculating data for an LLC

You need an LLC operating agreement in Delaware to maintain your personal assets separate from those of the LLC and open an LLC bank account.

Here are additional reasons why you need a Delaware LLC operating agreement.

Protection of the Limited Liability Status

An operating agreement enables you to build a structure that demonstrates your commitment to maintaining the assets separately and allows you to secure yours from your company's assets.

This is crucial for multi-member LLCs as you want to protect your assets from another member's actions by limiting your liability to the business alone.

To protect the limited liability status, Delaware LLC must state its liability protection in the LLC operating agreement.

Protection Against Default Delaware Laws

Using a laptop to write protection against default Delaware laws

Most states have default laws that specify how an LLC should function and be treated legally in cases when it lacks an operating agreement.

As a basic framework, these default regulations apply to LLCs. Delaware's default LLC law is the Delaware Limited Liability Company Act [2].

A Delaware LLC can, however, diverge from these default guidelines and exercise greater autonomy over defining and regulating its operations by drafting its operating agreement.

With the help of an operating agreement, an LLC can create its own set of unique policies, guidelines, and clauses better suited to its particular requirements and circumstances.

It gives the LLC the freedom to modify how it makes decisions and distributes profits, among other crucial features, per the preferences and agreements of its members.

Set Key Business Procedures

An operating agreement LLC is necessary to address the particular procedures and operations of an LLC, such as voting, meetings, communication, and dispute resolution.

A solid operating agreement ensures everyone is on the same page and provides comprehensive clarity regarding the company's intentions, enabling firms to expand.

A domestic and foreign limited liability company benefits from a structured framework that encourages adherence to these rules by all members by clearly establishing internal procedures through an operating agreement for an LLC.

The Delaware LLC operating agreement gives specific instructions for the daily management and governance of the LLC, ensuring smooth operation and reducing the possibility of disagreements.

Legitimacy

Legitimacy papers for LLC

Many entities frequently view a professional operating agreement LLC as a dependable sign of a reliable company.

A well-structured and efficient agreement shows that a business is proactive in organizing and conducting business legally.

It shows that the LLC is conscious of its legal responsibilities, deliberate in choosing its organizational structure, and ready to face difficulties in the future.

Verifying a company's reliability and expertise is crucial to lending institutions, particularly banks.

In some circumstances, they may even demand an operating agreement LLC to register a bank account.

FAQs

Is an Operating Agreement Required in Delaware?

No, an operating agreement is not required in Delaware. However, it's best to have an operating agreement to avoid default Delaware state laws from overriding your LLC.

Do I Have to File My Operating Agreement in Delaware?

No, you don't have to file your operating agreement in Delaware. If you have one, you should issue signed copies to every member and keep it internally with company records.

References:

  1. https://www.sec.gov/Archives/edgar/data/1485589/000119312510080408/dex33.htm
  2. https://delcode.delaware.gov/title6/c018/

About The Author

Author
Atty. Danya Shakfeh, with over ten years of experience as a corporate attorney, leads Motiva Law, offering strategic legal advice to entrepreneurs. She is skilled at transforming complex legal concepts into clear strategies, allowing clients to pursue their goals. A "Rising Star" by Super Lawyers and an alumna of Northwestern University Pritzker School of Law, Danya is distinguished in business law.
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Growth & Transition Advisor
LJ Viveros has 40 years of experience in founding and scaling businesses, including a significant sale to Logitech. He has led Market Solutions LLC since 1999, focusing on strategic transitions for global brands. A graduate of Saint Mary’s College in Communications, LJ is also a distinguished Matsushita Executive alumnus.
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