Definition:
An Operating Agreement is an internal legal document that outlines the ownership structure, management procedures, and operating rules of a Limited Liability Company (LLC). While not always legally required by state law, it is a foundational document that defines how the LLC functions and how decisions are made.
Key elements typically included in an Operating Agreement:
- Roles and responsibilities of members or managers
- Profit distribution rules
- Voting rights and decision-making procedures
- What happens if a member leaves, dies, or sells their interest
- Dispute resolution methods
- Rules for adding new members
Why is it crucial?
For single-member LLCs, it proves separation between personal and business assets strengthening limited liability protections. For multi-member LLCs, it prevents internal conflicts and legal disputes by clearly defining member expectations and rights.
Most banks, payment providers (like Stripe), and investors may require a signed Operating Agreement as part of the onboarding or due diligence process.
Who is it for?
Every LLC owner regardless of state or member count should create and maintain an Operating Agreement to ensure legal clarity, internal governance, and limited liability protection.
