Operating Agreement

What Is an Operating Agreement? An operating agreement is the governing document of a limited liability company (LLC) that establishes the rules for ownership, management, and operations. Similar to corporate bylaws, an operating agreement defines the rights and responsibilities of LLC members and managers. While not always required by state law, having an operating agreement is essential for protecting members' limited liability status. ## Key Provisions - Ownership percentages and capital contributions of each member - Distribution of profits and losses among members - Management structure (member-managed vs. manager-managed) - Voting rights and decision-making procedures - Rules for admitting new members or transferring interests - Dissolution and winding-up procedures - Buyout provisions and restrictions on transfers ## Why It Matters Without an operating agreement, the LLC will be governed by default state LLC statutes, which may not reflect the members' actual intentions. An operating agreement also helps establish the LLC as a separate legal entity, protecting members' personal assets from business liabilities. Single-member LLCs benefit from operating agreements as evidence that the business is not merely an alter ego of the owner.