Key Takeaways

  • An LLC operating agreement template serves as a customizable framework outlining ownership, management, voting, and profit distribution rules for your LLC.
  • While not always legally required, it provides essential legal protection by clarifying internal procedures and preventing disputes.
  • Templates should cover management structure, capital contributions, profit allocation, decision-making authority, and member withdrawal or succession.
  • Single-member LLCs also benefit from having an agreement to reinforce limited liability status.
  • Operating agreements may vary depending on the state and business type—owners should review state laws and consult an attorney before finalizing the document.

Operating Agreement LLC Template

An operating agreement LLC template is highly recommended when creating a business. An operating agreement dictates how a limited liability company manages the business and its operations. It’s a legal document, and many states consider them governing documents, so using a template is a good way to make sure you get the format right.

Understanding the Purpose of an LLC Operating Agreement

An LLC operating agreement template is more than a formality—it’s a critical internal document that defines how your limited liability company operates. It details the rights and obligations of each member, establishes management procedures, and specifies how profits and losses are shared. Even in states where this agreement is optional, it acts as a safeguard against misunderstandings by putting verbal agreements into writing.

Without an operating agreement, state default laws determine how the LLC operates, which might not align with the members’ intentions. For example, default statutes may split profits equally among members regardless of ownership percentage. Using a customizable template ensures you maintain control over those terms while complying with your state’s LLC Act.

Limited Liability Company

An LLC is a hybrid structure that combines the tax benefits of a sole proprietorship or partnership with a corporation’s legal benefits. This structure protects the members of the LLC from liability in regards to the legal obligations and company’s debt.

Why Every LLC Needs an Operating Agreement

Although the law in many states doesn’t require an LLC to have an operating agreement, having one is essential for several reasons:

  • Legal Protection: It demonstrates separation between personal and business assets, reinforcing the LLC’s liability shield.
  • Clear Governance: It defines how decisions are made, which prevents conflicts among members.
  • Financial Structure: It outlines how capital contributions are made, how profits are distributed, and how losses are handled.
  • Succession Planning: It details procedures for a member’s withdrawal, death, or transfer of ownership interest.
  • Custom Management Options: It allows for either member-managed or manager-managed structures depending on your business needs.

Even for single-member LLCs, an operating agreement is beneficial—it provides proof of limited liability status, which can be crucial when opening business bank accounts or dealing with creditors.

LLC Membership

Owning part of an LLC makes you a member of an LLC. Actually, a member can be an individual or a a corporation. Capital contributions must be made by a member. This can be money, services or property made in exchange for the corporation. Each member of a LLC has ownership of a percentage of the company. 

Key Clauses to Include in an LLC Operating Agreement Template

When drafting or completing an LLC operating agreement template, include clauses that define how your company will function. While each agreement should be tailored to your unique business, the following clauses are standard:

  1. Organization Details: Include the LLC name, principal address, and date of formation.
  2. Member Information: Identify each member and specify their ownership percentages or membership units.
  3. Capital Contributions: Define initial and future contributions in money, property, or services.
  4. Management and Voting: Indicate whether the LLC is member-managed or manager-managed, and describe voting rights and decision-making procedures.
  5. Allocation of Profits and Losses: Explain how income, expenses, and tax obligations are distributed among members.
  6. Membership Changes: Set rules for adding or removing members, transferring interests, or handling a member’s death or bankruptcy.
  7. Dissolution and Winding Up: Outline how the LLC will be dissolved and how assets will be distributed after debts are paid.

These components ensure that each member understands their role and the internal rules governing the LLC’s daily operations.

The Steps to Form an LLC

1. Choose a State

Selecting a state is an important decision. Some states are popular due to their tax environment. Businesses often find Nevada, Wyoming, and Delaware to be favorable to their business in this manner. If your business is very local, then it’s best to register within the state where you conduct that business.

However, if the business is internet based, then you can research which state is best for the business model. You will need a registered agent that is authorized to do business within the state in which you incorporate if it’s not the state in which you live.

There are professional services that can act as registered agents for a reasonable cost.

2. Select a Name

There is much to consider when deciding on what to name your business. Research what names have already been taken in your state. In almost every state, there is a database that shows the names of already registered businesses. For example, in Illinois, the Secretary of State has a database that lists every business registered in the state.

3. Registered Agent 

As mentioned earlier, an agent must be registered who’s able to act on behalf of the LLC within the state.

4. Articles of Organization

Filing for an LLC is different in every state. However, almost every one requires you to file articles of organization.

5. Write an Operating Agreement

An operating agreement is not required but highly recommended.

However, each member of the LLC should have a copy of the operating agreement.

The operating agreement is a legal document which details how the LLC manages the business, how decisions are made, and how the LLC should be dissolved. While an LLC is not required to have an operating agreement in any state in the United States, it is still very important.

It is the legal document that governs your limited liability company.

Even if you are the sole owner of a LLC an operating agreement is a good idea. It is an outline of how you will add members in the future. It is even more important when there are multiple members of the LLC.

How to Customize an LLC Operating Agreement Template

Using a pre-made LLC operating agreement template can simplify the drafting process, but it should always be customized to reflect your LLC’s unique structure. Start with a reputable source—many state business websites and legal services offer free templates. Then, tailor the following sections:

  • Ownership and Management Structure: Specify member-managed vs. manager-managed operations.
  • Profit Allocation: Decide if profits are split by ownership percentage or other criteria.
  • Voting Procedures: Set clear rules for major decisions, such as admitting new members or dissolving the company.
  • Dispute Resolution: Include mediation or arbitration clauses to resolve internal conflicts efficiently.
  • Succession Planning: Define what happens if a member dies, becomes incapacitated, or wants to leave the company.

Once completed, ensure all members sign and retain a copy. Even if the document isn’t filed with the state, it carries binding legal force among members.

Things in Operating Agreement

  • Limited Liability Company Name and Address
  • Articles of Organization
  • Registered Agent and registered offices of the LLC
  • Term of the LLC (if applicable)
  • Member voting rights
  • Business Continuity plan if a member passes away
  • Business reason for the LLC
  • Principal place that business will be conducted
  • Initial contributions
  • How profits and losses will be handled
  • Distributions and how they will be made
  • How the company will be run
  • Specific powers of managers and members
  • Management fees
  • Member’s assignments of rights

It is best to address possible issues before they come up. For example, if a member passes away, it’s best if your operating agreement covers how the business will handle it. It clarifies for all of the members what their roles and responsibilities will be for the members.

Common Mistakes to Avoid in an LLC Operating Agreement

Many small business owners make errors when completing their LLC operating agreement template. To avoid legal and operational complications:

  • Don’t rely solely on default laws. Customize the agreement to match your LLC’s goals.
  • Avoid vague language. Ambiguities can lead to disputes later.
  • Update regularly. Amend the agreement as the company grows or new members join.
  • Ensure consistency. Double-check that ownership percentages match those in the Articles of Organization and tax filings.
  • Seek legal review. Even if you use a template, have an attorney review the final version for compliance with state-specific requirements.

A well-prepared operating agreement is the cornerstone of an LLC’s long-term stability and protects all members from future misunderstandings or liabilities.

Frequently Asked Questions

  1. Is an LLC operating agreement legally required?
    Not always. Some states, like California and New York, mandate one for multi-member LLCs, but it’s advisable for all LLCs to have one.
  2. Can I use a free LLC operating agreement template?
    Yes, but it’s important to customize it for your state’s laws and your LLC’s ownership structure.
  3. What happens if I don’t have an operating agreement?
    Your LLC will default to state laws, which may not align with your business’s intended management or profit distribution.
  4. How many members can sign an LLC operating agreement?
    All members must sign. Their signatures confirm that they agree to the terms of the document.
  5. Do single-member LLCs need operating agreements?
    Yes. It helps establish the LLC as a separate legal entity, providing liability protection and simplifying business banking and tax documentation.

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