An LLC operating agreement sample will show how an operating agreement, a legal document that controls the functions of an LLC, should look when created by an LLC owner

What Is an LLC?

A Limited Liability Company, or LLC, is a business entity that is specifically structured to protect the company's members from financial obligations tied to the business. Owners of an LLC must file with their Secretary of State in order to officially form the company.

Each member of an LLC is assigned a percentage of ownership instead of shares like they would be given in a corporation. This percentage coordinates with the size of their capital contribution to the company. Members must be sure that these percentages add up to a total of 100, even if they have an odd number of members.

In order for a person or other business entity to become a member of an LLC, they have to contribute some kind of money, services, or property to the business and be assigned an ownership percentage.

LLC Operating Agreement Basics

An LLC operating agreement lays out the basics of how the company is structured and its main functions. This information includes:

  • Owner names.
  • Manager names.
  • Money or profit management information.
  • Resolutions of past and potential issues.

LLCs with multiple members should have an operating agreement, but companies with single members are less likely to need one. 

The LLC operating agreement lays out a clear description of any working or financial relationships among the members and managers.

A single-member LLC merely needs to state that there's one manager and no duties need to be split.

An operating agreement should describe how the company plans to deal with any disputes, money, and contracts. 

Operating agreements go by a few other names like:

  • LLC Bylaws.
  • LLC Operations Agreement.
  • LLC Setup Agreement.
  • LLC Agreement.
  • LLC Partnership Agreement.
  • Operating Agreement for LLC.

These legal documents are crucial for clarity and understanding while starting an LLC. They lay out the responsibilities and expectations for all members and managers including financial support and everyday duties.

LLCs allow for a lot of freedom when it comes to the structure of your company. You are not required to give any particular percentage to any one member. You can divide the ownership percentages based on responsibilities, not just financial contributions.

Corporations don't usually get as much freedom as LLCs. Because of government regulations and stocks issues, the requirements for S corporations, C corporations, and non-profits, are tighter.

Be sure to make it clear who is acting as your money manager in the Operating Agreement. The member who manages profits and any income should have the ability to write checks to see that money is fairly distributed and decide the layout of your fiscal year.

Operating agreements can also nail down your plans for handling resignations. Some LLCs decide that once a member leaves, the other members can divide the ex-member's ownership percentage among them.

You'll also want to specify how new members can join the LLC, whether or not members can resign voluntarily, if they have to avoid involvement with potential company competitors after resignation, and how the money would be handled if the LLC were dissolved. 

The operating agreement might also provide information about regular meetings including schedule and location.

Some LLCs might opt to include financial specifics in their operating agreement, like methods for accounting, the fiscal year, and details regarding the annual report.

Anytime members would like to change an operating agreement, they may do so by signing an amendment unanimously.

What Must Be Included in an LLC Operating Agreement?

LLC members must include the following information in their operating agreement:

  • LLC name.
  • Certificate of formation or the articles of organization.
  • Name of registered agent.
  • Address of registered agent's office.
  • Specified member voting rights.
  • Company continuance upon the death of a member.
  • Purpose of the LLC.
  • Address of main business location.
  • Names of members (including any added later).
  • Member contribution amounts and ownership percentages.
  • Plans for company profits and losses.
  • Plans for profit distributions.
  • Managerial plans.
  • Responsibilities of members and managers.
  • Plans for record keeping.
  • Fees for management.

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