Usually, no. Many states do not require an LLC to have a written operating agreement, but you should generally create one anyway. An operating agreement records how your LLC is owned and managed. If it does not address an issue, the state's default rules may apply. The requirement depends on the state where you formed the LLC.
New York requires LLC members to adopt a written operating agreement. Maine requires an LLC agreement to exist, although the agreement may be written, oral, or implied. Texas also recognizes written, oral, and implied "company agreements."
Operating Agreement Requirements at a Glance
| LLC situation | Is a written operating agreement usually required? | Practical recommendation |
|---|---|---|
| Single-member LLC in many states | Often no | Create a written agreement |
| Multi-member LLC in many states | Often no | Create one before conducting business |
| New York LLC | Yes | Adopt it before formation, at formation, or within 90 days after filing |
| Maine LLC | An LLC agreement must exist, but it may be written, oral, or implied | Use a written agreement |
| Texas LLC | State law recognizes oral, implied, and written company agreements | Use a written agreement |
An operating agreement is usually an internal company document. You generally do not file it with the Secretary of State, although a particular state or agency may have different requirements.
Why Should an LLC Have an Operating Agreement?
An LLC should have an operating agreement because it sets out rules that would otherwise come from state law or from an informal understanding between the owners. A written agreement can establish:
- Each member's ownership percentage
- Contributions of money or property
- Whether the LLC is member-managed or manager-managed
- Who may sign contracts and open accounts
- Voting requirements for major decisions
- Profit and loss allocations
- The timing and method of distributions
- What happens if a member dies, leaves, becomes disabled, or wants to sell an interest
- How disputes are handled
- How the LLC may be dissolved or the agreement amended
Without an agreement, the state's default rules may control. Those rules may not reflect what the members intended, especially when members contribute different amounts, have unequal ownership, or expect different voting and distribution rights.
Do I Need an Operating Agreement for a Single-Member LLC?
A single-member LLC often does not need a written operating agreement to exist, but having one is still advisable.
A single-member operating agreement can document that:
- You own 100% of the membership interest
- You manage the LLC
- The LLC is a separate business entity
- Business funds and records should remain separate from your personal funds and records
- You have authority to enter contracts and make company decisions
- The LLC has a process for adding members or transferring ownership later
A single-member agreement is usually shorter than a multi-member agreement. It becomes more useful when the LLC owns valuable property, signs major contracts, applies for financing, has employees, or may add another owner.
An operating agreement does not automatically provide personal liability protection. The LLC must also follow applicable law and maintain appropriate separation between the business and its owners.
Do I Need an Operating Agreement for a Multi-Member LLC?
You should treat a written operating agreement as essential for a multi-member LLC, even when state law does not require one.
The members should address:
- Ownership percentages
- Initial and future contributions
- Voting thresholds
- Management responsibilities
- Profit and loss allocations
- Distributions
- Member withdrawals and buyouts
- Transfers to spouses, heirs, or outside buyers
- Deadlock and dispute procedures
- Events that trigger dissolution
Two members may each own 50% of an LLC but contribute different amounts of cash, perform different amounts of work, or have different authority to make decisions. The Articles of Organization usually do not provide enough detail to resolve those issues. The operating agreement can define the members' internal rights and responsibilities.
What Is the Difference Between Articles of Organization and an Operating Agreement?
| Document | Main purpose | Usually filed with the state? |
|---|---|---|
| Articles of Organization | Creates the LLC and provides basic public information | Yes |
| Operating agreement | Establishes ownership, management, voting, distributions, and internal rules | Usually no |
The Articles of Organization create the LLC. The operating agreement governs how the LLC operates after formation. The U.S. Small Business Administration describes the operating agreement as the document that explains the structure of the LLC's financial and functional decisions.
What Happens If I Do Not Have One?
Your LLC does not necessarily become invalid because you lack a written operating agreement. The main risk is that state default rules, informal understandings, or incomplete records may control important decisions.
Possible problems include:
- State default rules controlling business decisions
- Disputes over ownership and voting rights
- Uncertainty about who can bind the LLC
- Difficulty dividing profits or approving distributions
- Problems handling a member's death, withdrawal, or attempted sale
- Greater difficulty proving what the members originally agreed to
The SBA advises LLC owners not to treat the absence of a legal requirement as a reason to skip an operating agreement.
Can I Use an Operating Agreement Template?
A template may work for a simple, single-member LLC, but it should match the law of the formation state and the facts of the business.
A lawyer should review or prepare the agreement when the LLC has:
- Multiple members
- Unequal ownership or contributions
- Investor funding
- Real estate or other high-value assets
- Special profit distributions
- Intellectual property contributed by an owner
- A manager who is not a member
- Family members or spouses as owners
- Professional licensing requirements
- Planned ownership transfers or buy-sell provisions
Do not sign a template with incorrect ownership percentages, management provisions, or tax language. An inaccurate agreement can create more problems than having no agreement.
What Should You Do Next?
- Check the LLC statute or Secretary of State guidance for the state where you formed the LLC.
- Prepare a written operating agreement, even if the state allows an oral or implied agreement.
- Have all members sign and date the agreement.
- Keep it with the LLC's core records instead of filing it with the state, unless instructed otherwise.
- Update it when ownership, management, contributions, or major business terms change.