Contract guide
LLC Operating Agreement — What to Include
An LLC operating agreement sets ownership, management, voting, and exit rules. Learn what to include for single-member and multi-member companies.
Written and reviewed by Talking Tree's legal team · Last reviewed September 2026
Forming an LLC establishes the entity, but it does not settle every question between its owners. Who can borrow money? What happens if a member wants to leave? An LLC Operating Agreement records how the company will make decisions and handle changes in ownership.
What Is an LLC Operating Agreement?
An LLC Operating Agreement governs the internal affairs of a limited liability company and the rights and responsibilities of its members and managers. It is separate from the formation document filed with the state. State law affects whether an agreement is required, what it may change, and which rules apply when it is silent.
When Do You Need One?
- You are forming an LLC, including a single-member LLC
- Two or more people will share ownership or contribute different resources
- You are bringing in a new member or appointing a manager
- You need agreed rules for distributions, transfers, deadlocks, or departures
What Should an LLC Operating Agreement Include?
1. Company and Members
Identify the LLC, formation state, purpose, and members. Include an ownership schedule and a process for updating it when authorized transactions occur.
2. Contributions and Ownership
Record cash, property, or services contributed and the interests issued in return. Explain future funding obligations, whether additional contributions are optional, and what happens if a member does not contribute.
3. Management and Authority
Specify member-managed or manager-managed governance. Define who can sign contracts, hire staff, borrow money, or open accounts, and which decisions require separate approval.
4. Voting and Reserved Decisions
Set voting thresholds, notice requirements, and meeting or written-consent procedures. Consider special approval for new members, major borrowing, sales of substantial assets, and changes to the agreement.
5. Profits, Losses, and Distributions
Distinguish accounting or tax allocations from cash distributions. Address timing, reserves, and tax distributions if appropriate. Coordinate these provisions with the company's tax treatment and applicable limits on distributions.
6. Records and Tax Administration
Assign responsibility for books, financial reports, tax filings, and member access to records. Identify any required tax representative and the approval process for tax elections.
7. Transfers and New Members
Define permitted transfers, approval rights, rights of first refusal, and admission procedures. Clarify whether an economic interest transfer also gives the recipient management or voting rights.
8. Departure, Disability, and Death
Specify buyout triggers, valuation methods, payment terms, and any insurance funding. Address the rights of an estate or successor and distinguish voluntary departure from removal.
9. Deadlock, Dissolution, and Amendments
Create an escalation process for unresolved decisions and a practical exit mechanism. Define winding-up responsibilities, payment priorities subject to law, and the approvals needed to amend the agreement.
Common Mistakes Founders Make
Assuming the formation filing covers governance. The filed document and the internal agreement serve different purposes.
Splitting ownership equally without a deadlock process. A 50/50 vote can leave the company unable to act when owners disagree.
Confusing taxable income with cash received. Members may need tax advice on allocations and distributions before agreeing to the economics.
Why This Matters for Founders
An operating agreement preserves the decisions owners make while they are aligned. It gives the company a reference when someone leaves, needs liquidity, or disagrees about the next stage of growth.
Start with the LLC Formation Guide if you have not yet formed the entity. A Founders Collaboration Agreement can address arrangements before formation.
Frequently Asked Questions
Is an operating agreement the same as an LLC formation filing?
No. Formation documents create the entity through a state filing; an operating agreement addresses internal ownership and governance.
Does a single-member LLC benefit from an operating agreement?
Yes. It can document authority, ownership, and succession, although legal requirements vary by state.
What should an LLC operating agreement include?
Members, contributions, management, voting, distributions, records, transfer restrictions, buyouts, deadlock procedures, and dissolution.
Legal and Practical Context
The SBA describes operating agreements as governing an LLC's financial and functional decisions. Requirements and default rules still depend on the formation state. SBA overview of operating agreements.
This guide focuses on common U.S. business considerations. Requirements and enforceability depend on the jurisdiction and the facts of the arrangement.
Explore Talking Tree's Contract Studio
Cedar, Talking Tree's Contract Studio, brings document preparation and signing into one workflow. Use this guide to organize your requirements, then explore the available templates and tailor the document to your business.
Get started with Talking Tree.
This page is for informational purposes only and does not constitute legal advice. For advice specific to your situation, consult a licensed attorney.