Key Takeaways

  • A sample operating agreement for two member LLCs outlines how the business will be run, including member duties, voting rights, and financial arrangements.
  • Though not always legally required, having an operating agreement is essential for legal protection and clarity in multi-member LLCs.
  • Operating agreements can address specific needs like real estate ownership, dispute resolution, and tax treatment.
  • Important clauses include ownership percentages, capital contributions, profit distribution, and succession planning.
  • Templates vary but often include standard legal language and customizable sections to suit your LLC's purpose.

Operating Agreement Overview

A sample operating agreement for a two member LLC is a basic template to follow to create an operating agreement for you two member limited liability company. An operating agreement is a legal document that sets out the internal workings of your LLC. Having one is usually not required, but it is strongly recommended.

Multi member LLCs like two member LLCs especially stand to benefit from having an operating agreement, as having multiple members means they must ever operate with the possibility for internal disputes arising regarding company-related business. Having an operating agreement can decrease the likelihood for such disputes by setting out how company business is to be handled before it must be handled. Or, at the very least, it can offer a path for how disputes can be resolved.

Why Two Member LLCs Need an Operating Agreement

Even though many states don’t require a written operating agreement, having one is crucial for any multi-member LLC. A sample operating agreement for two member LLCs not only defines how the business is structured and operates but also provides clear expectations between the members. Without a written agreement, state default rules govern your LLC, which may not reflect your intentions.

Key benefits include:

  • Clarified Roles and Responsibilities: Each member's authority, obligations, and limitations are documented.
  • Dispute Prevention and Resolution: The agreement outlines how to resolve disagreements before they escalate into costly legal battles.
  • Asset Protection: Helps maintain limited liability by formalizing the LLC structure.
  • Custom Governance Rules: Allows you to override default state provisions to suit your specific business goals.
  • Credibility with Investors and Banks: Lenders and potential partners often request to review your operating agreement.

Sample Operating Agreement

Because operating agreements are generally not required by the state, their format and requirements are not officially regulated. An operating agreement may be as simple or as complex as the members’ deem necessary. A sample outline of how an operating agreement may be set out is as follows:

  1. Introduction. This states the name of the company, the names of the members, and the nature of the business the LLC will be engaged in.
  2. Definitions. This section defines certain terms that will occur later on in the agreement. Terms defined may include such terms as “agreement,” “business plan,” or “effective date,” or any term whose definition seems necessary.
  3. Formation. This states the type of LLC that is being formed (single- or multi-member), it’s name, when the LLC will be effective and for how long, what the purpose of the LLC is, and who the registered agent of the LLC will be.
  4. Accounting and banking. This sets out what financial records shall be kept and where, who will handle financial matters, who will handle auditing, how banking will be dealt with, and what the fiscal year of the company will be.
  5. Members’ rights. What rights the members will have will be laid out in this section. This may include voting rights, administrative powers, and the ability to enter into contracts on the LLC’s behalf.
  6. Management. This will set out how the LLC is to be managed, including whether it will be a member-managed or manager-managed LLC. Whether there will be meetings, how often these meetings will be, and what may be decided in these meetings may also be stated.
  7. Capital  contributions. This states what amount of capital each member will contribute to the LLC. Capital may include money, property, services, or some other agreed upon contribution.
  8. Profit and loss allocation. How profits and losses from the LLC will be distributed to members will be set out here. This distribution may be done proportionally to each member’s contribution, or some other method of distribution may be agreed upon. Unlike corporations, LLCs are free to choose any distribution system they want.
  9. Membership transference or withdrawal. This states whether members will be able to transfer their ownership to another party, and if so, how. Similarly, how a member’s desire to withdraw from the LLC will be dealt with will be set out.
  10. Dissolution and termination. The reasons for dissolution or termination of the LLC will be stated here. These can include the LLC expiration being met, the LLC members mutually agreeing to part ways, and breach of contract by one of the members. This section should also state how material and intellectual property should be distributed.
  11. Confidentiality, property rights, and licenses. This identifies what information is considered confidential and to what extent it is so, who owns the rights to intellectual and other property, and who may grant those rights to third parties.
  12. Prohibited activities. This covers what activities both parties agree should not be engaged in, either in the name of the company or with company resources.
  13. Miscellaneous. This section may be used to cover any items that were not covered in the previous sections.
  14. Signatures. Here the signatures of the LLC members and the LLC representative, along with the date, will be listed.

Upon completion and signing of the document, a copy should be distributed to both members to be kept in their records.

Special Considerations for Real Estate or Asset-Holding LLCs

A sample operating agreement for two member LLCs is especially important for businesses holding real estate or other substantial assets. In these cases, the agreement may include:

  • Property Ownership Clauses: Specify how the title is held (e.g., by the LLC) and how income and expenses related to the property are shared.
  • Maintenance and Improvement Duties: Determine how costs are shared and who is responsible for maintenance, repairs, or upgrades.
  • Exit Strategy: Define what happens if one member wants to sell their interest or if the property is sold.
  • Appraisal and Buyout Terms: Establish a process for property valuation and member buyouts to avoid disputes over fair market value.

This is especially useful when the LLC was formed solely to own and manage a rental property or investment asset.

Optional Clauses to Include in a Two-Member LLC Agreement

In addition to standard terms, a sample operating agreement for two member LLCs can include optional provisions tailored to your business needs:

  • Deadlock Resolution: A process for breaking ties in voting (e.g., mediation, casting vote, or external arbitration).
  • Tax Treatment Election: Specify whether the LLC will be taxed as a partnership, S corporation, or C corporation.
  • Non-Compete Clause: Prevents members from starting a competing business during or after their time in the LLC.
  • Succession Planning: Describes what happens if a member dies, becomes incapacitated, or wishes to transfer their interest.
  • Member Loans and Interest: Guidelines for loans made by members to the LLC, including repayment terms and interest rates.

These additional clauses help ensure your agreement is comprehensive and reflects the unique structure of your LLC.

Tips for Drafting and Customizing Your Agreement

Here are practical tips to make your sample operating agreement for two two-member LLC both effective and customized:

  • Use Clear Language: Avoid overly complex legalese when simple wording will suffice.
  • Be Specific: General terms can lead to future disputes. Define percentages, dollar amounts, and processes precisely.
  • Review State Requirements: Some states have unique rules affecting LLC governance or dissolution.
  • Tailor Templates: Start with a general sample operating agreement, but always tailor it to reflect the needs of your specific LLC.
  • Consult a Legal Professional: While templates are helpful, reviewing the final document with an attorney ensures compliance and completeness.

You can find a qualified business attorney on UpCounsel to review or help you draft your operating agreement.

Frequently Asked Questions

Is a sample operating agreement for two member LLC legally binding? Yes, once signed by both members, the agreement becomes a legally binding contract that governs how the LLC operates.

Can I create my own operating agreement without a lawyer? Yes, but it's recommended to have it reviewed by a legal professional to ensure compliance with your state laws and proper coverage of potential issues.

What happens if my LLC doesn’t have an operating agreement? Your LLC will be governed by default state laws, which may not align with your intentions or provide adequate protection in disputes.

Should both members have equal ownership? Not necessarily. Ownership percentages can be based on capital contributions, sweat equity, or any agreement between the members. The operating agreement should clearly reflect this.

Can the agreement be changed later? Yes. Most operating agreements include provisions for amendments, typically requiring a majority or unanimous vote of the members.

If you need further help with the sample operating agreement for a member LLC, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.