How to Create an LLC Operating Agreement Template + Sample

Having an operating agreement isn’t just something you do because everyone does it. It’s a document that states how your business runs, who the decision-makers are, ownership, profit sharing, and how conflicts are resolved.

Though not every state requires you to file one, it’s very important to have one. It does more than solidify your business’s legitimacy; it protects your interests.

Let’s look at what a business operating agreement looks like, what it should include, and how to create one with a sample business operating agreement to get you started. Considering opening a business with other people? Check out our guide on a multi-member operating agreement.

What Is a Business Operating Agreement and Why Do You Need One?

A business operating agreement is a document that defines the business’s ownership and management structure, as well as its financial arrangements. It’s like an internal rulebook LLCs use to manage their business.

Do You Need an Operating Agreement?

Legally, not all states require you to have one. However, even if it’s not mandatory in your state, you should have one to protect your business, and here’s why:

• You Need It for Banks: While you might not need to file it with the state if your state doesn’t require it, most financial institutions will ask for your operating agreement to take loans, and some even ask if you want to open a business account.
• Protects Your Assets: If you don’t have a document that shows your business is a separate entity from you, the business owner, a court could “pierce the corporate veil” and hold you personally liable for business debts.
• Simplifies Conflict Resolution: Your operating agreement also dictates owners’ voting and profit-sharing ratio. This ensures there’s less dispute about who can make what decisions and how profit is shared among members. You can also state how conflicts around specific issues should be resolved to avoid expensive legal battles.
• It Lets You Override State Defaults: Stating exactly how you want your business to be run prevents it from defaulting to state rules that may not favor you, especially for profit sharing, decision-making, and ownership.

Types of Limited Liability Companies and How They Affect Your Operating Agreement: Single-Member vs. Multi-Member

The type of Limited Liability Company you run determines the kind of agreement document you need. Here’s what you need for each specific one:

• Single-member LLC: This has just one owner, and you make all the decisions and all the profit goes back to you. And you might be wondering why you need an operating agreement since everything is owned by you — well, it’s because having an operating agreement simply establishes that your business is legally separate from you as an individual, which is what protects your personal assets from business debts.

Trying to start your first LLC solo? Read our guide on setting up a single-member LLC in Texas.

• Multi-member LLC: This type of LLC has at least two owners. For this, you need an agreement to clarify how the business is run, not just to protect personal assets. Your agreement document should cover:
  • Each member’s ownership percentage
  • Capital contribution from each member
  • How profits and losses are distributed
  • Voting rights and decision-makers
  • Members’ exit, whether by leaving the company, being incapacitated, passing away, etc.

Want to go into a business partnership? Read our complete guide on how a multi-member LLC operating agreement works.

What to Include in an LLC Operating Agreement

Here are the most important things you need to include in your operating agreement:

• Business Purpose: This should answer what your LLC does, clearly stating what your business does.
• LLC Name and Principal Address: The official name of your LLC as it appears in your articles of organization, and your registered business address.
• Members and Ownership Percentages: List every member of the LLC and their percentage of ownership to show how it adds up to 100%.
• Capital Contribution: How much does each member contribute to the business in terms of cash, property,  equipment, or services? This helps calculate ownership stakes and profit sharing.
• Profit and Loss Distribution: Spell out how profits and losses are divided among members. This can be based on ownership, capital contribution, and other factors the members agree on.
• Management Structure: Your operating agreement should show who manages the company, whether it’s managed by members (member-managed) or by appointed managers (manager-managed).
• Voting Rights: Define how decisions are made — for example, does each member have one vote or are votes weighted by share? Also, what are the decisions that require everyone to agree for it to move forward, and which decisions require a majority vote?
• Meetings and Record-keeping: Define how often members meet — could be monthly, quarterly, etc. — how you inform members of the meeting, and how you record the minutes of the meeting.
• Transfer of Membership Interest: What happens if a member wants to sell or transfer their ownership stake? Do other members get the right of first refusal? Your agreement should have a clear process.
• Dissolution: What triggers the dissolution of the LLC? What’s the process for winding down operations and distributing remaining assets?

How to Write an Operating Agreement for Your LLC

You have a few options when it comes to creating an operating agreement.

• Use a Free LLC Operating Agreement Template: There are so many free operating agreement templates online; you can pick one, customize it to fit your business structure, and use it. This is not a bad option if you’re running a small LLC with low capital. The most important thing is to ensure it protects your personal assets from business debt since you’re still the one running the business and don’t have to look into profit-sharing.
• Use AI as a Starting Point: You can use an AI tool to generate a draft operating agreement. It’s faster than starting from a blank template. However, it’s just a draft, not the final document; ensure you properly review it, and preferably have an attorney check it to be sure it doesn’t leave a legal loophole that may leave your business at a disadvantage.

Prompt you can use: Looking at my business goals (state business goals), business structure (state your business structure), how capital is contributed (enter your capital contribution even if it’s just you), draft an operating agreement, and let me know if any areas aren’t covered.

• Consult a Business Attorney: This is the best option regardless of size and number of members. There are legal landmines you might not even think to check if you don’t have a good grasp of how different business laws can affect your business. And when your LLC has complex ownership structures, multiple members with unequal contributions, or unusual profit-sharing arrangements, having a lawyer draft a customized agreement for you is important. Let an attorney look through your business goals, members’ contributions, and recommend the best course for your operating agreement.
• Use a Free LLC Operating Agreement Template as a Starting Point, Then Get It Reviewed: This is slightly less expensive than asking an attorney to come up with the initial draft, and not as risky as using a generic template. You write it, then ask a lawyer to check it out for you and review it against your business goals and any possible legal implications to be on the safe side.

Free LLC Operating Agreement Template: What to Look for

Before deciding to go with a template, ensure it has all the following elements:

• Covers everything mentioned in what to include in your operating agreement template
• Is specific to your LLC type (single-member vs. multi-member)
• Allows enough flexibility for you to customize the profit-sharing, voting rights, and management structure to fit your business
• Is up to date with current LLC law in your state

Sample Business Operating Agreement: What One Looks Like

Here’s what a sample business operating agreement typically looks like for a small LLC:

➡️View Limited Liability Company template

Ready to Form an LLC?

An operating agreement is one of the first documents you should put in place after filing your articles of organization. It ensures there’s a clear outline for how the business is run, profits are shared, and who the decision-makers for specific decisions are.

Looking for legal guidance on your LLC operating agreement? Book a consultation with MCIS Law to ensure your LLC agreement is airtight and serves your business interests.

Frequently Asked Questions About LLC Operating Agreements

What Is the Difference Between Articles of Organization and an Operating Agreement?

Articles of organization are what you submit to the state to form your LLC. An operating agreement, on the other hand, is a private internal document that outlines how your LLC runs.

Does a Single-Member LLC Need an Operating Agreement?

Yes. Even if you’re the only member, an operating agreement ensures that your personal assets and business assets are treated separately by the law and ensures you’re not personally liable for business debts. Also, most banks require it for opening a business account.

Can I Write My Own LLC Operating Agreement?

Yes, you can. However, this works better for a simple single-member LLC. For complex business structures, it’s preferable to have an attorney draft one that fits your intended business goals and members’ interests, or you can draft it and give it to an attorney to review.

Can I Use AI To Generate an LLC Operating Agreement?

Sure, you can use it as a starting point, especially for a simple single-member LLC. However,  AI tools are not 100% accurate and may miss legal context and nuances an experienced attorney would catch to keep your business protected.

What Happens If an LLC Doesn’t Have An Operating Agreement?

If you don’t have an operating agreement, then your LLC is governed by your state’s default LLC rules. The main problem with this is that while the rules are made for fairness, they’re not tailored to your specific business, and things may turn out unfavorable for members. For example, some states default to equal profit sharing between members for an LLC, even when capital and service contributions aren’t equal, which is not a favorable arrangement for the members contributing more.

Is an Operating Agreement Legally Binding?

Yes. If your operating agreement is signed by the LLC members, it is legally binding and can be enforced in court.

Can an Operating Agreement Be Changed After the LLC Is Formed?

Yes; however, all members must agree, or the majority must agree, depending on the voting rights in your existing operating agreement for decisions like this.

Does an Operating Agreement Need to Be Notarized?

In most states, no. But all members should sign it; each member should have a copy, and the company should keep a copy.

What Is a Capital Contribution in an LLC Operating Agreement?

It’s how the business is funded — what each member contributes to the business in terms of cash, property, equipment, or services. This should be documented in the operating agreement and, in most cases, used to calculate ownership percentages.

How Do Voting Rights Work in a Multi-member LLC?

It depends on what your operating agreement says. Voting rights can be equal (one vote per member) or proportional to ownership percentage. Your agreement should also specify which decisions require a unanimous vote versus a simple majority.

Do I Need a Separate Operating Agreement for Each State if My LLC Operates in Multiple States?

No. Your operating agreement is tied to the state where your LLC is formed (your home state). If you register as a foreign LLC in another state, you may need to file additional paperwork, but you won’t need a separate operating agreement.