Key Takeaways

  • An LLC partnership agreement (or operating agreement) outlines ownership, roles, and business procedures for LLC members.
  • The agreement helps prevent disputes by clearly defining responsibilities, rights, and profit-sharing arrangements.
  • It is not always legally required but is highly recommended for multi-member LLCs.
  • Key provisions often include decision-making processes, capital contributions, dispute resolution, and dissolution procedures.
  • States like Texas offer guidance on structuring business entities, though specific LLC agreement requirements may vary by jurisdiction.

An LLC partnership agreement is written by the owners of an LCC and lays out plans and provisions for the company. It is also known as an LLC operating agreement.

Intro to LLC Partnership Agreement

An LLC (Limited Liability Company) is a type of business that helps to protect owners and member from liabilities, hence the name. This type of company is structured similarly to a corporation, but avoids some of the restrictions and tax issues that can come with a corporate structure.

An LLC partnership or operating agreement is used to define the operating terms of the company as well as to protect the legal rights of members.

A partnership agreement is a great way to start any business as it lays out company policies and plans from the beginning. 

Partner or member responsibilities are defined in an LLC partnership agreement, and the plans for structure and management are laid out.  

Having clearly-outlined responsibilities in a written document can help prevent disagreements in the future. 

Some aspects of an LLC startup can be exciting, like the choosing of a name, making decisions about services or products, and planning for growth and success.

Other aspects are less fun and exciting like writing out the partnership agreement. Even though it's not as fun, this is still an important part of starting a business. 

Most state laws don't necessarily required filing of these documents, but they should still be completed before entering into such a huge venture as building a company. 

What Should Be Included in an LLC Partnership Agreement?

An LLC partnership agreement serves as the internal governing document for your limited liability company. While not always required by law, this agreement provides a clear roadmap for how your LLC will operate. Key sections that should typically be included are:

  • Ownership Details: List all members and their percentage ownership interests.
  • Management Structure: Define whether the LLC will be member-managed or manager-managed.
  • Capital Contributions: Outline each member’s initial investment and any plans for future contributions.
  • Profit and Loss Allocation: Describe how profits and losses will be distributed among members.
  • Voting Rights and Decision-Making: Specify voting powers and how major decisions will be made.
  • Roles and Responsibilities: Clarify duties of each member and manager.
  • Dispute Resolution: Include procedures for resolving disagreements among members, such as mediation or arbitration.
  • Withdrawal and Dissolution Terms: State how the LLC will handle the exit of a member or wind down the business entirely.
  • Amendment Process: Explain how the agreement can be updated or amended in the future.

These provisions help ensure that all members understand their rights and obligations, which can reduce the risk of conflicts.

LLC Operating Agreement

Articles of incorporation are used to govern corporations, so an LLC operating agreement works in a similar way. 

Specific details in these agreements are going to depend on the size of the company, tax issues, management structure, investor and member numbers, and profit sharing. If an LLC has more than one member, the operating or partnership agreement acts as a contract that the members are bound to. 

Key details included in an operating agreement include:

  • List of owners/members.
  • List of managers (members or otherwise).
  • Plans for profits.
  • Plans for problem solving.

The three main reasons to create an operating agreement, even if it's not a requirement in your state, are:

  • To define the control of your business yourself, rather than defaulting to state laws.
  • To clearly define your company as a limited liability type, and therefore protect members from financial liabilities.
  • To help present future disputes among members as everything is clearly laid out.

Any company or partnership is wise to create a formal and written agreement between the founding owners to prevent future issues. 

Once a partnership agreement is written and signed, members are legally bound to its stipulations and provisions. 

An LLC partnership agreement should be written and signed before the actual running of the business begins. It can cause problems and difficulties if this is done later. 

LLC partnership agreements are also known as:

  • LLC (or Limited Liability Company) operating agreements.
  • LLC bylaws.
  • LLC operations agreements.
  • LLC setup agreements.

Partnership agreements are put in place to make sure that all owners, members, or partners agree on the main company issues and plans. This process can help members have important discussions about their visions or intentions for the company, the obligations for particular members, and their plans for large changes, like the loss of a member.

LLC partnership agreements should also state the basic information about the company including:

  • Company name.
  • Main operating address.
  • Company type (LLC, LP, Corp, etc.).
  • Company purpose.

These agreements can also protect members or partners from being unfairly-treated by other members and help resolve disputes with already agreed-upon plans for conflict resolution.

In the case that the LLC is dissolved, partnership agreements should lay out plans for how the assets and money will be handled.

LLCs can be owned and operated by one individual. The operating agreement for a single-member LLC will be very basic, as there is less potential for disputes and therefore fewer things to stipulate. A single-member LLC can claim to be a sole proprietorship with the IRS and be taxed accordingly, rather than taxed as a corporation or partnership, like a multi-member LLC would be.

Legal Considerations and State Requirements

While most states do not require an LLC partnership agreement to be filed with the state, having one is strongly advised. Some jurisdictions may have default rules that apply in the absence of an agreement, which may not align with your business intentions.

For example, Texas recommends that business owners carefully select their business structure after consulting with legal and tax professionals. The Texas Secretary of State’s office provides general guidance on business entity formation but does not mandate operating agreement filing for LLCs​.

Regardless of your location, drafting a well-structured agreement can help ensure that your LLC operates according to your chosen terms rather than relying on state defaults.

If you need assistance drafting or reviewing an LLC partnership agreement, you can find experienced attorneys through UpCounsel’s legal marketplace.

Why an LLC Partnership Agreement Matters for Single-Member LLCs

Even though a single-member LLC does not face disputes between multiple owners, having an LLC operating agreement is still beneficial. It can:

  • Establish clear documentation of the business structure for lenders and investors.
  • Help maintain limited liability protections by formally separating the owner from the business.
  • Specify what happens to the business if the single member becomes incapacitated or passes away.

Certain states may require an operating agreement for single-member LLCs to maintain legal recognition of the business structure.

Member-Managed vs. Manager-Managed LLCs

One important decision covered in the LLC partnership agreement is whether the LLC will be managed directly by its members or by designated managers:

  • Member-Managed LLC: All members participate actively in the day-to-day operations and decision-making.
  • Manager-Managed LLC: Members appoint one or more managers (who may or may not be members themselves) to handle daily operations.

Choosing the right management structure should align with the company’s goals and the desired involvement of its owners.

Frequently Asked Questions

  1. Is an LLC partnership agreement legally required?
    No, most states do not require an LLC partnership agreement by law, but it is highly recommended to protect your business and clearly define member rights and responsibilities.
  2. What is the difference between an LLC partnership agreement and an operating agreement?
    These terms are often used interchangeably. Both refer to the internal document that governs the structure, operations, and management of the LLC.
  3. Can a single-member LLC have a partnership agreement?
    Yes. While there is only one member, a single-member LLC can still benefit from having an operating agreement for legal clarity, liability protection, and operational guidance.
  4. How can an LLC partnership agreement help prevent disputes?
    By clearly defining ownership shares, duties, voting rights, and dispute resolution methods, the agreement minimizes misunderstandings that could lead to conflicts.
  5. Does the LLC partnership agreement need to be notarized?
    Not usually, though having the document signed and dated by all members is essential. Some members may choose to notarize the agreement for added formality.

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