An LLC operating agreement is a legal document that outlines how you’ll run your LLC and the rights and responsibilities of the LLC’s members (which is a fancy way of saying owners). If the idea of drafting a formal document for your business sounds, well, terrible, don’t worry—we’ve got a free LLC operating agreement template.
But before you start crafting your operating agreement, here are a few basics you should know.
Do single-member LLCs need an operating agreement?
Yes! An operating agreement helps establish your LLC as a separate legal entity, helping preserve your liability protection. It also lends credibility to your LLC, and lenders may even ask to see it when you apply for a loan.
An operating agreement gives you more flexibility when it comes to running your business. Without an operating agreement, you’re required to follow your state’s LLC rules. With an operating agreement in place, you can bypass some of your state’s default rules and follow your operating agreement instead.
Also, an LLC operating agreement lays out a succession plan for your business. You’ll name whom you want to take over your business in the event of your death. Having this in writing could make it easier for your family to continue to operate your business or dissolve it.
What’s inside an operating agreement?
There’s no required format for an operating agreement, which means you have complete freedom over how you structure it. Most operating agreements include the following sections:
- Organization: General information about the LLC and its formation and members
- Management: Establishes how the LLC is managed and the voting rights of the members
- Contributions and distributions: Specifies the property, money, or services each member will contribute and how the LLC’s profits are distributed
- Membership changes: Describes how new members are added and the procedure for removing members. You can also include your succession plan here.
- Dissolution: Describes how members will split the remaining assets and property if the LLC is dissolved and what steps the LLC will take to wind up its affairs
- Other provisions: This is where you can add additional information about how you’ll run your LLC.
What to do with your operating agreement
Unlike your LLC’s articles of organization, you don’t need to file your operating agreement with the government. But it’s still helpful to keep your operating agreement handy and use it as a reference guide for running your business.
These templates are for illustrative purposes only and should not be construed as either actual or constructive legal advice being given.
Andi Smiles is a small business financial consultant and coach. She’s helped hundreds of small business owners take control of their business finances while uncovering their emotional relationship with money.