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What Is An LLC Operating Agreement 2026? Everything You Need To Know
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How To Start LLC In The US
Overview
The detailed steps
Most business owners place their focus on the registration paperwork when initially forming a Limited Liability Company (LLC). While this is certainly a crucial aspect of the formation process, they tend to overlook one of the most critical internal documents: the LLC Operating Agreement (OA). This may also be referred to as a “Limited Liability Company Agreement,” an “LLC Agreement,” or a “Company Agreement.”
Note: The OA is often treated as an internal, unfiled document in most U.S. states. This means that it isn’t placed in a file and doesn’t tend to follow strict deadlines. However, some states, like New York, legally require the OA to follow a strict deadline (Within 90 days of formation), even though it’s not filed with the state. Therefore, it’s important that you check the specific state requirements using our summary table below.
You should always complete a written OA to serve as clear legal evidence. This ensures both clarity and enforceability, protecting your LLC from potentially costly legal battles in the future. I’ve listed the OA requirements for each state to help you stay compliant in your chosen state. You’ll learn the importance of your OA and how to complete it.
| State | Is a written OA required by law? | OA flexibility note |
|---|---|---|
| Alabama | No | The OA generally overrides state law |
| Alaska | No | The OA generally overrides state law |
| Arizona | Yes (agreement is mandatory, can be oral/implied) | High contractual freedom |
| Arkansas | No | The OA generally overrides state law |
| California | Yes (required for internal affairs) | More stringent laws; some rules cannot be overridden by the OA |
| Colorado | No | The OA generally overrides state law |
| Connecticut | No | The OA generally overrides state law |
| Delaware | No | Highest flexibility (Maximum freedom of contract). OA overrides most state laws |
| District of Columbia (DC) | No | The OA generally overrides state law |
| Florida | No | The OA generally overrides state law |
| Georgia | No | The OA generally overrides state law |
| Hawaii | No | The OA generally overrides state law |
| Idaho | No | The OA generally overrides state law |
| Illinois | No | The OA generally overrides state law |
| Indiana | No | The OA generally overrides state law |
| Iowa | No | The OA generally overrides state law |
| Kansas | No | The OA generally overrides state law |
| Kentucky | No | The OA generally overrides state law |
| Louisiana | No | The OA generally overrides state law |
| Maine | Yes (agreement is required) | The OA generally overrides state law |
| Maryland | No | The OA generally overrides state law |
| Massachusetts | No | The OA generally overrides state law |
| Michigan | No | The OA generally overrides state law |
| Minnesota | No | The OA generally overrides state law |
| Mississippi | No | The OA generally overrides state law |
| Missouri | Yes (internal agreement mandatory) | The OA generally overrides state law |
| Montana | No | The OA generally overrides state law |
| Nebraska | No | The OA generally overrides state law |
| Nevada | No | Highly flexible law; strong asset protection focus |
| New Hampshire | No | The OA generally overrides state law |
| New Jersey | No | The OA generally overrides state law |
| New Mexico | No | The OA generally overrides state law |
| New York | Yes (must be adopted within 90 days of formation) | Mandatory for legal compliance and maintenance of the LLC |
| North Carolina | No | The OA generally overrides state law |
| North Dakota | No | The OA generally overrides state law |
| Ohio | No | The OA generally overrides state law |
| Oklahoma | No | The OA generally overrides state law |
| Oregon | No | The OA generally overrides state law |
| Pennsylvania | No | The OA generally overrides state law |
| Rhode Island | No | The OA generally overrides state law |
| South Carolina | No | The OA generally overrides state law |
| South Dakota | No | The OA generally overrides state law |
| Tennessee | No | The OA generally overrides state law |
| Texas | No | The OA generally overrides state law |
| Utah | No | The OA generally overrides state law |
| Vermont | No | The OA generally overrides state law |
| Virginia | No | The OA generally overrides state law |
| Washington | No | The default rule of equal split is a major reason to draft a custom OA |
| West Virginia | No | The OA generally overrides state law |
| Wisconsin | No | The OA generally overrides state law |
| Wyoming | No | Highly flexible law; often chosen for strong asset protection |
LLC Operating Agreement Overview
An LLC OA is a foundational internal contract that acts as a written contract between LLC members. It includes things such as the LLC’s ownership structure, management responsibilities, and key operational details.
You can draft an Operating Agreement before, during, or after filing your formation documents. Each timing option has its own advantages and drawbacks. These differences will be explained in a later section.
While it’s not required by law in most states, it serves as a crucial formal document that defines and enforces the executive and managerial authority within the structure of the LLC. This means that it overrides the default rules set by the state, ensuring clarity and efficient internal operations.
1. Where Should You Send Your OA?
Your OA is a legally-binding internal company document. Therefore, unlike your LLC formation documents, it doesn’t need to be mailed anywhere. You don’t need to send it to the Internal Revenue Service (IRS) or the state.
Instead, keep a copy alongside your other official business records for safekeeping and future reference. Make sure it’s filed in a safe place, preferably in a designated office space.
Tip: Make sure that each LLC member has a signed copy of the OA. This ensures consistency and accessibility among members, preventing future disputes.
2. Types Of LLC Operating Agreement
State law allows businesses full flexibility when customizing their business structure. Because of this, the OA follows two main templates to reflect the LLC’s power distribution:
- Member-managed LLC: all LLC members have equal authority to act on behalf of the LLC. They’re responsible for business decisions and daily operations and directly participate in the company’s management.
- Manager-managed LLC: LLC members appoint one or more managers. The managers handle the daily operations and decision-making processes. Members take a passive role, while managers act on behalf of the LLC.
Use my free templates below to begin drafting your LLC Operating Agreement. In the following section, I will walk you through the essential components that every OA must include. This guidance will help you customize your OS to fit your specific business needs.
Tip: If you’re unsure of which business type to choose, I think that it’s generally best to use a member-managed OA. This is the most common and easiest management structure to follow, especially for small businesses.
How To Write Your LLC OA
Your LLC OA includes essential information regarding your LLC, most of it similar to what’s listed in your Certificate of Formation (The document filed when forming your LLC).
Some of the key information that needs to be on your OA includes:
1. LLC Name
This must be your business’s legal entity name, or the name you put on your LLC Certificate of Formation.
2. LLC Principal Address
This is the place your business operates from.
3. LLC Effective Date
It is the date when your LLC officially becomes legally recognized and can start conducting business.
4. Registered Agent
A Registered Agent is a person or company authorized to receive official legal and government documents on behalf of your LLC.
5. Duration Of Your LLC
The duration of your LLC is the length of time the LLC is intended to exist, which can be perpetual or for a specific term.
6. Management Structure (And Management Responsibilities)
The management structure of an LLC defines who runs the company: Members (Owner-managed) or managers (Manager-managed). Management responsibilities include making business decisions, handling finances, and ensuring compliance with laws.
7. How Your LLC Will Be Taxed
How your LLC will be taxed refers to the federal tax treatment you choose: by default, a single-member LLC is taxed as a sole proprietorship and a multi-member LLC as a partnership, but you can also elect to be taxed as a C-corporation or S-corporation.
8. LLC Ownership
LLC OAs must list all members and their respective ownership percentages. This is referred to as their “LLC membership interest” in official business terms.
Note: Individual membership interests are commonly represented as “Percentages of ownership.”
9. Initial Capital Contributions (Investing Money In Your LLC)
Once your Certificate of Formation is accepted by the state and your LLC is formed, you’ll need to open an LLC business bank account. This is crucial to maintain your limited liability protection, ensuring your personal assets remain separate from the business.
Once opened, each LLC member makes an initial capital contribution. This acts as the first financial investment from each business owner, which is deposited into the LLC’s business bank account. In most cases, this helps to finance the initial startup costs and establish a solid foundation.
Note: You need to list each capital contribution on your LLC’s OA, also known as your LLC Agreement.
10. Voting Rights And Member Authority
Your OA must list all members and their respective voting power. This is often based on their percentage ownership or LLC capital contribution.
Including this ensures transparency and fairness during decision-making processes. It also prevents potential disputes over who has the authority to make key business decisions.
11. Compensation And Loss Allocation
You should also explain how profits and losses will be distributed between LLC members. This is based on the members’ percentage ownerships or their LLC capital contributions.
Having this clearly defined prevents potential misunderstandings, ensuring members are treated fairly according to their agreed investments and roles in the business.
Tip: Including details on how and when distributions will be made provides greater consistency and financial transparency.
12. Ownership Transfers And Dissolution
Make sure that your OA includes procedures for transferring ownership interests and admitting new members. It’s important to include these terms even if you’re operating a single-member LLC, in case you appoint new members in the future.
- Outline clear procedures in the case of dissolution. Include how your LLC’s assets, debts, and remaining funds will be managed. This ensures that the dissolution process is legally compliant, orderly, and fair to all members.
- Specify the authority to initiate dissolution and approve ownership transfers. This helps prevent internal disputes and ensures legal clarity during major business changes.
13. Members’ Confirmation
Once you’ve finalized the above information, include a section where all members can formally agree to the terms. Each member needs to sign the agreement, along with their printed name and signing date.
This confirms that each member has officially reviewed, understood, and accepted the agreement. Once this is completed, the OA is legally binding and serves as proof of each member’s consent and commitment to the outlined rules and structures.
Digital and physical signatures can both serve as official proof. However, they need to be dated and kept with your official business records for verification.
Note: You can resolve future disputes regarding membership or decision-making authority by keeping this section complete and up-to-date.
When Should You Complete the OA?
Your OA does not have a mandatory deadline in most states once your Certificate of Formation is filed. The only exception is in the state of New York, where you have 90 days to complete your OA following formation.
However, you should ensure that it’s completed at the time of filing to ensure your LLC is “Completely organized.” It’s always better to get your important documents filed or completed as early as possible to avoid missed deadlines or future confusion.
Tip: Draft and execute your OA before or at the same time as you file your Certificate of Formation. This ensures good risk management and business governance.
| Timing | Rationale & benefits (the “why”) | Risk of not having one |
|---|---|---|
| Before or at the time of filing the Certificate of Formation | This ensures your LLC operates efficiently from its formation, effectively bypassing any default rules. Your OA serves as initial proof of your members’ intentions. | You run the risk of having no agreement to resolve potential disputes immediately after formation. This may force potentially unfavourable default state rules to come into play. |
| After the time of filing the Certificate of Formation | This gives you time to discuss complex terms and procedures before putting everything into writing. | You’ll face significant legal and administrative difficulties if a dispute arises, a disgruntled member withdraws, or you need to open a bank account before the agreement is finalized. |
Why Your LLC Needs An OA
Your LLC requires an OA as it uses people or entities to operate and manage the company. While it’s not permitted by state law in most cases, you’re strongly recommended to have one to provide practice guidance and legal protection.
Here are some of the main supporting reasons why your LLC should have an OA:
1. Proves LLC Ownership
Your Certificate of Formation doesn’t list member names, only the name of your LLC and the official Registered Agent. Therefore, it can’t serve as proof of ownership.
However, your OA lists all members, providing proof of business ownership. This is crucial for solving legal disputes, opening bank accounts, and protecting members’ limited liability status. It forms a vital document providing evidence of the LLC business structure.
2. Reinforces Your Limited Liability Status
Your LLC must be legally separate from its business owners to maintain its limited liability status. Completing and following the OA, including opening a separate business bank account, acts as proof that the LLC is separate from its owners, removing liability.
3. Settles Member Disputes
However strong you think that your member relations are, misunderstandings and disputes are inevitable. The different opinions and views are part of what makes us as humans unique.
Having an OA that clearly states the business operations, including management structures and roles, helps prevent these misunderstandings and disputes from happening.
4. Overrides State Default Laws
Your LLC is automatically governed by default state law if you don’t have an OA in place. While these state default rules might not suit your business, they’re necessary without one. Therefore, a personalized OA that’s accepted by all members is preferable.
Example: Your LLC wants to use an allocation ratio that deviates from the state’s default rules (it’s not based on capital contributions).
In this case, you’ll need to clearly document this required arrangement in your LLC’s OA to ensure full transparency. Once the LLC is operating in Delaware, the agreement serves as essential written evidence, legally overriding the Delaware LLC Act’s default provisions (Section 18-503).
This ensures that the agreed arrangement, including the financial interests of all parties, is legally protected and enforceable under the OA.
LLC OA Tips
If you’ve decided to take my advice and make an LLC OA, here are the main tips to follow. While you can draft one yourself, it’s always good to hire a professional company to ensure everything is completed correctly.
1. Put It In Writing
Make sure that your LLC has a written copy of the OA once it’s completed. It should be signed, dated, and agreed upon by all LLC members. Once this is completed, it becomes legally binding.
If you don’t have a written OA, a judge will decide your LLC’s ownership and structure. They’ll make a default judgment during a dispute, which won’t take any of your company’s interests into account.
Note: While you’re permitted to use a verbal/implied OA, only the written version is legally enforceable.
2. Sign The Agreement
Your written OA must be signed and agreed upon by all LLC members to make it legally binding. While unsigned agreements can still serve as evidence in some cases, they’re often problematic.
If you don’t possess a signed OA, you’ll often be required to enlist costly legal assistance. This wouldn’t be needed with a signed OA.
3. Adapt As The Business Grows
It’s vitally important that you update your OA as your business grows and undergoes significant operational changes. This ensures that your OA is current and applies to all potential business outcomes.
If you don’t update it, it could be useless if the problem or members are not explicitly stated in the agreement. Key examples include when transferring ownership or changing management.
You must print the new OA and get it re-signed by all members if changes are made.
Tip: Make sure that you keep a copy of all versions of your OA. This ensures that you have a history of changes made in case disputes arise.
4. Cover Key Aspects
Your LLC OA needs to be thorough and well-written. It should detail all aspects of your business, including:
- Ownership structures.
- Management structures.
- Finances.
- Taxes.
- Other key business rules that you feel are important.
Tip: Include detailed information, ensuring all outcomes are covered. Think about your daily business operations, including what problems could arise between members and other parties, before completing the agreement.
Frequently Asked Questions
No, an LLC Agreement is not required to form an LLC.
All LLCs, regardless of whether they’re single-member or multi-member businesses, need to have a written OA to follow state law and maintain their limited liability protection.
Yes, multi-member LLCs are also required to have a signed OA. This needs to outline the ownership structure, profit distribution, capital contributions, and management structures. Listing these helps protect the personal assets of all members.
No, you don’t need to send your OA to the state. This includes the Secretary of State, Division of Corporations, or any other official government agency.
OAs must be kept on record. They may be needed for audits, court proceedings, banks, loans, and real estate transactions. However, they’re internal, legally binding documents that don’t require government approval.
Your OA becomes legally binding once all members have signed. It doesn’t need to be notarized.
Yes, you can write your own OA. You don’t require an attorney or a template to cover key details. I recommend using a sample or template to ensure full legal compliance.
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