An LLC operating agreement is one of the most useful documents you can create for your business.
It explains who owns the LLC, who manages it, how profits are shared, how decisions are made, and what happens if an owner leaves.
Even if you have a single-member LLC, an operating agreement is still a smart idea. It helps show that your business is separate from you personally.
It can also be useful when opening a business bank account, applying for payment services, working with investors, or dealing with legal and tax matters.
For multi-member LLCs, this document is even more important. It helps prevent confusion between business partners by setting rules before problems happen.
An operating agreement is usually kept in your company’s records rather than filed with the state.
However, LLC laws vary by state, so always make sure your agreement complies with the rules of the state where your LLC was formed.
Quick Answer: What Should an LLC Operating Agreement Include?
A good LLC operating agreement should include:
- The LLC’s legal name and business address
- Names of all owners
- Ownership percentages
- Member contributions
- Management structure
- Voting rights
- Profit and loss sharing rules
- Rules for taking money out of the business
- Procedures for adding or removing members
- Rules for selling ownership interests
- Steps for closing the LLC
- Signature section for all members
The agreement should be clear, simple, and written in a way that all owners understand.
What Is an LLC Operating Agreement?
An LLC operating agreement is a private legal document that explains how your company will operate.
It acts like a rulebook for the business. It tells members what they can do, what they cannot do, and how important decisions should be handled.
For example, it can explain:
- Who has authority to sign contracts
- Who can open a business bank account
- How profits are divided
- Whether members can take salaries or draws
- How voting works
- What happens if a member dies, resigns, or wants to sell their share
- What happens if the LLC closes
Once all members sign the operating agreement, it becomes an important internal contract between them.
Why You Need an Operating Agreement?
Many new business owners think an operating agreement is only for LLCs with several partners. That is not true.
A single-member LLC can benefit from an operating agreement because it shows that the business is a separate legal entity. This can be useful when dealing with banks, payment processors, insurance companies, lenders, and business partners.
A multi-member LLC needs an operating agreement because it reduces the chance of future disputes.
Imagine two people start an LLC together. One person puts in more money, while the other person does most of the daily work. Without a written agreement, they may later disagree about ownership, profit sharing, decision-making, or who has the right to control the company.
A clear operating agreement helps avoid these issues by putting the rules in writing from the beginning.
The agreement should reflect how your business actually works, including financial and management decisions.
Before You Start Writing
Before writing your operating agreement, collect the basic information about your LLC.
You should know:
- Your LLC’s full legal name
- The state where the LLC was formed
- The main business address
- The name and address of the registered agent
- The names of all members
- Each member’s ownership percentage
- The amount each member contributed
- Who will manage the business
- How members will share profits and losses
- How major decisions will be approved
It is much easier to write the agreement when all owners have already discussed these points.
Do not wait until there is a disagreement. The best time to write an operating agreement is when everyone is still aligned and excited about the business.
Step 1: Add Basic LLC Information
The first section should clearly identify the company.
Include the full legal name of the LLC exactly as it appears in your state formation documents. Also include the state where the LLC was created and the date it was officially formed.
For example:
“The name of the company is Bright Horizon Media LLC. The company was formed under the laws of the State of Wyoming on June 1, 2026.”
You should also include the principal business address. This is the main address used for company operations and official records.
If your business is fully remote, use the actual address where the business is managed. Do not use a fake address. You may also list a separate mailing address if needed.
Step 2: State the Purpose of the LLC
The next section should explain what the company does.
You do not need to make this section too narrow. It is usually better to use broad language so your LLC can expand into related activities later.
For example:
“The purpose of the LLC is to provide online marketing, content publishing, advertising, consulting, ecommerce, and any lawful business activity permitted under state law.”
This type of wording gives your LLC flexibility. If you start with affiliate marketing and later add digital consulting, software services, or ecommerce products, you may not need to update your operating agreement.
Avoid writing a purpose that is too limited unless your business must operate in a specific regulated industry.
Step 3: List All LLC Members
A member is an owner of the LLC.
This section should list the full legal name of every member and their ownership percentage.
For a single-member LLC, it may look like this:
“[Name] is the sole member of the LLC and owns 100% of the membership interest.”
For a multi-member LLC, it may look like this:
“[Name] owns 60% of the membership interest.
[Name] owns 40% of the membership interest.”
Ownership percentages should always add up to 100%.
You can also include each member’s address, but it is better not to share this document publicly because it may contain personal information.
Step 4: Explain Member Contributions
A contribution is what each member puts into the business.
This can include money, equipment, intellectual property, services, inventory, or other valuable assets.
For example:
“Member A contributed $10,000 in cash to the LLC. Member B contributed website development services valued at $5,000.”
Be clear about whether the contribution gives the person additional ownership or whether it is treated as a loan to the business.
This is very important in multi-member LLCs. If one person contributes more money later, the operating agreement should explain whether their ownership percentage changes.
You can also add a rule that no member is required to contribute more money unless all members agree in writing.
Step 5: Choose How the LLC Will Be Managed
An LLC can be member-managed or manager-managed.
A member-managed LLC means the owners are directly involved in running the business. This is common for small LLCs with one or two active owners.
A manager-managed LLC means one or more people are appointed to manage the business. The managers may be owners, but they do not have to be.
For a single-member LLC, it is usually simple. The owner is often the sole member and manager.
For example:
“The LLC will be member-managed. The sole member has full authority to manage the business and make decisions on behalf of the LLC.”
For a multi-member LLC, clearly explain who can make daily decisions and who needs approval for major decisions.
Major decisions may include:
- Taking out a loan
- Adding a new owner
- Selling company assets
- Changing the business structure
- Signing a large contract
- Closing the business
- Changing ownership percentages
Step 6: Set Voting Rights and Decision Rules
This section is especially important for multi-member LLCs.
You need to decide how voting will work. Some LLCs give each member one vote. Others give voting power based on ownership percentage.
For example, a member with 60% ownership may have 60% of the voting power.
You should also decide which decisions need a simple majority and which decisions need unanimous approval.
A simple majority means more than 50% approval.
Unanimous approval means every member must agree.
You may want unanimous approval for major actions, such as:
- Adding a new member
- Selling the LLC
- Closing the LLC
- Changing the operating agreement
- Taking on major debt
- Changing ownership percentages
Clear voting rules can stop one member from making major decisions without the others knowing.
Step 7: Explain How Profits and Losses Will Be Shared
Profits are the money left after the business pays its expenses. Losses happen when expenses are greater than income.
Most LLCs divide profits and losses based on ownership percentage.
For example, if one member owns 70% and another owns 30%, they may receive profits in the same proportion.
However, LLC members can agree to a different arrangement if it is properly written in the operating agreement.
For example, one member may own 50% but receive a larger share of profits because they manage the business full time.
Make sure everyone understands the difference between ownership percentage, salary, profit distributions, and reimbursements.
A member may receive money from the LLC in different ways. They may receive payment for work, reimbursement for business expenses, or distributions from company profit. These should be properly recorded.
Step 8: Add Rules for Member Draws and Payments
A member draw is money taken from the LLC by an owner.
Your operating agreement should explain when members can take money from the business.
For example:
“Members may take distributions only when the LLC has enough funds to pay its expenses, taxes, debts, and upcoming obligations.”
This helps stop members from taking too much money out of the company.
You can also explain whether members will receive regular compensation for working in the business. This is especially useful when one owner works every day while another owner is only involved financially.
For example:
“Members who perform regular services for the LLC may receive compensation approved by the members.”
Step 9: Create Rules for Adding New Members
Your LLC may grow in the future. You may want to add a business partner, investor, spouse, family member, or employee as an owner.
Your operating agreement should explain how this can happen.
A common rule is that all current members must approve a new member in writing.
You should also explain:
- How much the new member will contribute
- What ownership percentage they will receive
- Whether existing members lose part of their ownership
- Whether the new member must sign the operating agreement
- Whether the new member receives voting rights immediately
Do not add a new owner informally through a verbal agreement. Always update the operating agreement and ownership records.
Step 10: Add Rules for a Member Leaving the LLC
Members may leave an LLC for many reasons. They may want to retire, sell their share, move away, start another business, or simply stop being involved.
Your agreement should explain what happens when a member wants to leave.
It should answer questions like:
- Can the member sell their ownership interest?
- Do other members get the first right to buy their share?
- How will the ownership value be calculated?
- Can the member transfer ownership to a family member?
- What happens if the member dies or becomes unable to work?
- What happens if a member files for bankruptcy?
A common rule is called the right of first refusal. This means existing members get the chance to buy the departing member’s share before it is sold to an outside person.
Step 11: Include Rules for Disputes
Business disagreements can happen even between friends, family members, or long-term partners.
Your operating agreement should explain how disputes will be handled.
You may require members to first try to resolve the issue through a meeting. If that does not work, they may use mediation. Mediation involves a neutral person who helps both sides reach an agreement.
For serious disputes, the agreement may require arbitration or allow the members to go to court.
Simple wording can be:
“Members agree to make a good-faith effort to resolve disputes through discussion before starting legal action.”
This gives everyone a chance to solve problems without immediately creating expensive legal issues.
Step 12: Explain How the LLC Can Be Closed
Every operating agreement should include rules for closing the business.
This process is called dissolution.
Your agreement should explain what happens if the members decide to close the LLC.
It may include:
- Required member vote
- Payment of business debts
- Sale of business assets
- Final tax filings
- Closing bank accounts
- Distribution of remaining money
- Filing dissolution documents with the state
For example:
“After payment of all debts and obligations, the remaining assets of the LLC will be distributed to members based on their ownership percentages.”
Step 13: Add an Amendment Section
Businesses change over time. Your operating agreement should explain how it can be changed.
For a single-member LLC, the owner can normally update the agreement whenever needed.
For a multi-member LLC, you may require a majority vote or unanimous approval.
For example:
“This operating agreement may be amended only through a written agreement signed by all members.”
Keep a copy of every amendment with the original operating agreement.
Step 14: Sign and Store the Agreement
Every member should sign and date the operating agreement.
Each owner should receive a copy. Keep the original in a safe place with your LLC formation documents, EIN confirmation, business licenses, bank records, and tax documents.
You may also need to show the agreement to a bank, lender, payment provider, lawyer, accountant, or investor.
Do not file it publicly unless your state or a specific organization asks for it.
Final Thoughts
A strong LLC operating agreement gives your business clear rules from the beginning.
For a single-member LLC, it helps show that your company is separate from you personally. For a multi-member LLC, it helps protect relationships by explaining ownership, profits, authority, voting, and exit rules before disagreements happen.
Keep the language simple, make sure all members understand it, and update the agreement when your business changes.
For complex ownership structures, major investments, or businesses with several partners, it is wise to have a qualified business attorney review the final document.