Illinois LLC Operating Agreement: Why and How to Get One

Do I need an operating agreement in Illinois?

According to the Illinois Limited Liability Company Act (805 ILCS 180 Sec. 15-5), members may create an operating agreement to regulate company affairs, but it's not mandatory. That said, the law gives operating agreements the authority to:

• Establish how the LLC will be managed (whether by members or appointed managers)
• Define how decisions are made and how profits or losses are shared
• Modify or override certain default rules in the LLC Act, as long as the agreement doesn't conflict with specific legal protections and fiduciary duties outlined in Sections 15-5(b) and (c).

Without an operating agreement, however, your LLC's internal affairs are automatically governed by the default rules laid out in the state statute.

Benefits of having an IL operating agreement

Even if you're the sole member of your LLC, it still makes sense to create an operating agreement. After all, it gives you a much larger say in how your business is organized and governed. 

Aside from control, here are a few reasons why creating an operating agreement is a good idea for any LLC in Illinois. 

• Personal protection: Shows that your LLC is a separate entity from you, which helps protect your limited liability status and personal assets.
• Clear documentation: Puts important decisions and information in writing so there's less room for confusion. 
• Operational clarity: Outlines how the business should operate, including who does what and how decisions get made. 
• Banking and financing: Before approving accounts or loans, banks often ask for an operating agreement. 
• Plan for the unexpected: Gives you a policy for handling conflicts, member exits, or other changes in the business. 

Key components of an Illinois LLC operating agreement

There's no set format to follow when you create an operating agreement, but you can start by gathering the information below. You can also work with an attorney or LegalZoom, and we'll help you draft your agreement in just a few steps. 

Business information

Your operating agreement should include your LLC name (as it appears on your articles of organization), Illinois registered agent information, and principal place of business. If your company has multiple locations or keeps records at a site other than the principal address, you can note those details here as well (805 ILCS 180 Sec. 1-40).

You may also want to include other specifics if they apply to your business, such as:

• The expected duration of the LLC (if not perpetual)
• The specific purpose for which it was formed 
• Language noting that your business is organized as a series LLC under Illinois law (805 ILCS 180 Sec. 37-40)

Then, gather information for all members, including their names, last known address, capital contributions, and ownership percentages. 

Management structure and member authority

In this section, you'll state how your LLC will be managed: 

• In a member-managed LLC (the default in Illinois), all LLC members run the business. 
• In a manager-managed LLC, the members delegate this authority to one or more managers. 

Your agreement can also outline how managers are appointed or removed, what decisions require member approval, and management's specific duties and limitations (805 ILCS 180 Sec. 15-1). 

You should also consider each member's voting power, how and when to hold meetings, and the procedure for making significant changes—even if just for yourself as the sole member. 

Profit sharing and financial matters

While many businesses choose to share profits and losses based on ownership percentages, you're free to agree on a different arrangement in your operating agreement. 

You should define how and when profit distributions are made, how financial records are kept, and whether members must make future capital contributions. If needed, you can specify any consequences for not making contributions (805 ILCS 180 Sec. 20-5).

Your operating agreement can also outline your LLC's tax classification (e.g., as a sole proprietorship or corporation) and designate someone to handle tax matters. 

Amendments, exits, and dissolution

Lastly, you can include a section about the process for making changes—whether to the agreement itself or business operations. Keep in mind that Illinois statute requires unanimous consent to amend an operating agreement (unless specified otherwise in the agreement itself). 

You'll also want to address what happens when a member leaves the LLC, including buyout procedures, succession plans, and voting rights. Then, it's helpful to name any events that would automatically trigger dissolution and how to wrap up your LLC's affairs. 

How to create an Illinois LLC operating agreement

You can find templates to help you draft a simple operating agreement, but you'll want to avoid any terms that conflict with the provisions found in 805 ILCS 180 Sec. 15-5. If you'd like assistance, LegalZoom can help you draft an operating agreement that meets your business needs and complies with Illinois rules.

Here's how to get started.

1. Gather member information

First, collect all relevant information for your LLC and its members. This includes everyone's name, address, ownership percentages, and how much capital they've contributed. 

You'll also want to have your employer identification number (EIN) ready, along with the information you filed with the Illinois Secretary of State—such as your articles of organization and registered agent details. 

2. Decide on the management structure

Most small LLCs in Illinois are member-managed. If you're running a single-member LLC, this is likely the right setup for you. If you instead plan to hire or appoint others to handle operations, you'll want a manager-managed structure. In both cases, make sure you put everyone's responsibilities in writing to avoid confusion later on. 

3. Draft the agreement

At this stage, LegalZoom will take care of most of the drafting for you. Simply answer a few questions, and we'll create your LLC's operating agreement. You can also work with an attorney, find templates, or attempt to draft it yourself. However, be careful with the last two options—any conflicts with Illinois law can jeopardize the agreement's validity and your business' liability protection. 

4. Review and revise

Once your drafted agreement is complete, double-check the details for accuracy. Make sure names, contributions, roles, and procedures are clearly stated and reflect what everyone agreed to. If you wrote the agreement yourself, consider meeting with an attorney to ensure it meets your needs and complies with Illinois' requirements

If your LLC has multiple members, share the draft with everyone and give them some time to suggest changes. Once everyone's on the same page, you can make any necessary updates and move on to signing. 

5. Sign and distribute

After the final review, have all members sign the operating agreement and make copies for everyone involved. You'll need to store the original in a secure location—ideally at the business address listed in your articles of organization or wherever you keep your official company records.

If you make changes in the future, be sure to follow the amendment procedures outlined in your agreement, document everything in writing, and have all parties re-sign the document. 

Get an Illinois LLC operating agreement with LegalZoom

Of all the things on your plate as an LLC owner, a lengthy operating agreement may not be at the top of your priority list. While you don't technically need one in Illinois, it's highly recommended that all businesses create an operating agreement for legal protection. 

Instead of sorting through templates, let LegalZoom help. Just tell us about your business, and we'll prepare a customized operating agreement for as little as $99.

FAQs

Can I write my own operating agreement for my LLC?

Yes, you can write your own operating agreement (whether for a single or multi-member LLC) in Illinois, but this isn't always the best route. Even though this is an internal document that you don't typically file with the state, your agreement still needs to be legally sound in order to be enforceable.

Is an LLC operating agreement the same as a business plan?

No. A business plan covers your company's goals, strategy, and funding needs. On the other hand, an operating agreement governs your LLC's internal structure, including the responsibilities, ownership splits, and rules among members or managers (even if you're the only one member).

How do I find the operating agreement for an LLC in Illinois?

The best way to get a copy of another business' operating agreement is to ask the LLC owner or managing member directly. Keep in mind that operating agreements aren't filed with the Illinois Secretary of State or normally available to the public, so you may not be able to get a copy if the LLC refuses. 

Can I change my operating agreement after forming my LLC?

Operating agreements can be amended at any time as long as you follow the process laid out in the agreement and Illinois law. Some changes may require updates to your articles of organization on record with the state, depending on what's being revised.