What Is An LLC Operating Agreement? (2026)
Contributor
Reviewed By Adam Ramirez, J.D.
Editor
Summary
- Limited liability companies (LLCs) are formed with articles of organization
- Company members can enter into an LLC operating agreement
- LLC operating agreements govern financial and operational matters
Limited liability companies (LLCs) combine the control and flexibility of a partnership with the civil liability protections of a corporation. This agreement can help company members avoid financial and operational misunderstandings, keeping the business running smoothly. Here’s what you need to know.
Definition of an LLC Operating Agreement
Most states have not yet adopted the most recent version of the Model Limited Liability Company Act. However, its definition covers the key principles of an operating agreement.
So what is an LLC operating agreement under this act? It is any oral or written agreement among the LLC members that governs elements like these:
- Member relations
- Manager rights and duties
- Company activities and conduct
- Procedure for amending the operating agreement
The agreement covers both the members and the company. In other words, it tells members what they can or cannot do within the business and tells the company what it will or will not do.
What to Include in an Operating Agreement
An LLC operating agreement is customizable to the members’ needs. Generally, though, these agreements include the following terms:
- Member financial contributions
- Voting procedure
- Profit distribution process
- Member responsibilities and duties
- Procedure for adding or removing members
In many cases, your LLC operating agreement can be customized from a template. What is an LLC operating agreement template? A template gives the foundation of an agreement that can then be supplemented by the members.
Examples of operating agreement templates include the following:
- Use a single-member LLC operating agreement template if an LLC has only one member.
- Create a multi-member LLC operating agreement for LLCs with two or more members.
- Use an LLC operating agreement amendment template to change an operating agreement.
Although LLCs are flexible, the operating agreement can’t change certain default rules. For example, in Nebraska, an operating agreement cannot eliminate a member’s right to call for a dissolution of the company.
Benefits and Drawbacks of an Operating Agreement
Perhaps the biggest benefit of an LLC operating agreement is that all the members know how the company should be run. If there are any disputes, the LLC operating agreement can help resolve them either among the members or in court.
A potential drawback to an operating agreement could be that it can limit a company’s activities so that it cannot respond to business or market changes.
Operating Agreement vs. Articles of Organization and Bylaws
What is an LLC operating agreement’s main distinction from the articles of organization and bylaws? The operating agreement governs an LLC and its members, while the articles of organization are filed with the state to create the LLC. Usually, LLCs do not have bylaws. This term refers to the rules that govern corporations.
Is Your LLC Legally Required to Have One?
LLCs are not legally required to have an operating agreement in most states. A few states, like California and Delaware, require one. It’s a good idea to create one in most circumstances.
The Importance of Creating a Clear LLC Operating Agreement
An LLC operating agreement reduces disputes among members. Using the right form and having a clear LLC operating agreement can help your business run smoothly and protect your interests along the way.
