Delaware LLC Operating Agreement (Guide + Free Template)
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.
If you're in a rush, here are the absolute essentials:
- Define ownership percentages clearly (initial contributions + ownership %)
- Establish management structure (member-managed vs. manager-managed)
- Set voting requirements for major decisions (unanimous vs. majority)
- Include buy-sell provisions for member exits
- Add dispute resolution procedures to avoid costly litigation
For complete protection, continue reading the full guide below.
What Is a Delaware LLC Operating Agreement?
A Delaware LLC operating agreement is the foundation document that establishes:
- Who owns the company and in what percentages
- How decisions are made (voting rights and requirements)
- How profits and losses are distributed
- What happens if a member wants to leave or dies
- How the LLC can be dissolved if necessary
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
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
For Member-Managed LLCs, include:
- Voting thresholds (simple majority vs. supermajority)
- Meeting requirements and notice periods
- Decision-making scope for routine vs. major decisions
For Manager-Managed LLCs, address:
- Manager selection/removal process
- Specific powers granted to managers
- Limitations requiring member approval
- Reporting requirements to members
Real-World Application: "When our Delaware LLC needed to take on debt financing, our operating agreement required a 75% vote. This prevented hasty decisions and forced thorough discussion before we took on significant obligations." - Sarah K., Retail Business Owner
3. Describe Rights, Obligations, and Benefits
Address these specific scenarios:
- Right of first refusal for existing members
- Approval requirements for new members
- Triggering events (death, disability, divorce)
- Valuation methods for buyouts
- Payment terms for departing members
Warning Sign: Without clear transfer provisions, your LLC could be forced to accept unwanted business partners or face dissolution when a member exits.
Before & After Example:
❌ Insufficient Protection:
Members may transfer their interest with approval from other members.
✅ Comprehensive Protection:
No Member shall sell, assign, transfer, pledge, or encumber any portion of their Membership Interest without first offering it in writing to the Company and remaining Members at the lesser of: (a) the same terms offered by a third party, or (b) Fair Market Value as determined by an independent appraiser selected by the Company. The Company and Members shall have 30 days to exercise this right of first refusal. Any approved transfer shall require the transferee to execute a counterpart to this Agreement.
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?
| Without an Agreement | With a Proper Agreement |
|---|---|
| Delaware's default laws control your LLC | Your custom rules govern your business |
| No protection against personal liability claims | Clear separation between personal/business assets |
| No defined process for resolving disputes | Established conflict resolution procedures |
| Unclear profit distribution methods | Customized allocation of profits and losses |
| Default 50/50 ownership regardless of contribution | Ownership percentages based on your preferences |
To protect the limited liability status, Delaware LLC must state its liability protection in the LLC operating agreement.
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.
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:
- https://www.sec.gov/Archives/edgar/data/1485589/000119312510080408/dex33.htm
- https://delcode.delaware.gov/title6/c018/
