Operating Agreement

If you’re planning to start a limited liability company (LLC), you may be wondering if you’re required to draft an operating agreement, especially if you don’t have any business partners you’re entering into a contract with. While requirements for operating agreements can vary by state, it can be a good idea to have one, even if the law doesn’t require you to.

What is an operating agreement?

An operating agreement is a legal document that outlines how your business will operate. If your LLC has multiple members, the operating agreement can outline details of the management structure, including who is responsible for what, what the chain of command is within the organization, and how any profits will be split amongst members.

The terms of your operating agreement are largely dictated by you—but the agreement can afford you more protection the more detailed it is. For example, the operating agreement can include detailed rules about who can and cannot handle company funds, which may come in handy if there are any disputes among members over the handling of assets. If your limited liability company includes the use of proprietary software or information that you don’t want shared, then you can also include a nondisclosure agreement within your operating agreement.

How to get an operating agreement for your LLC

Tailoring the document to fit your business's unique needs is crucial for its effectiveness. You can draft one yourself, use a template, or opt for a professional operating agreement service like LegalZoom that helps you draft a comprehensive agreement through a guided questionnaire.

For added assurance, consider partnering with a legal expert to ensure your operating agreement aligns perfectly with state regulations and your business structure. Remember, an operating agreement is a legally binding document once all members sign it, so you want to be sure you and your company's interests are protected.

Frequently asked questions

Do LLCs need to have an operating agreement?

LLC operating agreements are a requirement for LLCs in certain states: California, Delaware, Missouri, New York, and Maine. If you’re forming your business in another state, the law does not require one to be drafted, but that doesn’t mean you won’t derive some benefit from putting down your company’s operating guidelines in writing.

What happens if an LLC doesn’t have an operating agreement?

If you live in one of the five states that requires an operating agreement, you must draft one—but you aren’t required to file it with a government office as it’s considered an internal document. If you don’t live in one of these states, you can choose to forgo the operating agreement altogether, though you may put yourself at risk for disputes with other members down the line if you run into disagreements about how to run the business.

Can you get an operating agreement after registering your LLC?

Since operating agreements aren’t a legal requirement in most states, it shouldn’t be a problem to draft yours after registering your LLC. In those states where operating agreements are required, they don’t need to be registered with the Secretary of State’s office. As such, not having one right away won’t stop you from registering your business, though you should still be sure to complete your agreement to stay in full compliance.

Can you amend an operating agreement?

Yes, you can amend an existing operating agreement after you draft it, but you may be bound by the rules set forth in your original agreement in order to do so. For example, if your original operating agreement dictated that all LLC members have an equal say in the running of the business, then you may need to get the approval of all members to amend your agreement.