An operating agreement is a private contract that explains how an LLC will be owned, managed and operated. It usually looks like a formal business contract with numbered articles, defined terms, member information, ownership percentages, management rules, voting requirements, profit distributions, transfer restrictions and signature pages.
Most operating agreements are 5 to 20 pages long. A simple single-member LLC agreement may be shorter, while a multi-member or investor-backed LLC agreement may be much longer. One sample agreement may identify an effective date such as January 15, 2026.
Operating Agreement at a Glance
| Feature | What it usually contains |
|---|---|
| Document title | "Operating Agreement of [Company Name], LLC" |
| Parties | The LLC and its members |
| Company details | Legal name, formation state, principal office and business purpose |
| Ownership | Each member's percentage or membership units |
| Management | Whether the LLC is member-managed or manager-managed |
| Voting | Voting rights, approval thresholds and major decisions |
| Money | Capital contributions, profit allocations and distributions |
| Transfers | Rules for selling, assigning or inheriting membership interests |
| Dissolution | How the LLC can be closed and its assets distributed |
| Execution | Member signatures and the effective date |
| Attachments | Ownership schedule, contribution schedule and other exhibits |
Example of What the First Page May Look Like
OPERATING AGREEMENT
OF
BLUE OAK CONSULTING, LLC
This Operating Agreement is entered into effective as of January 15, 2026,
by the members of Blue Oak Consulting, LLC, a limited liability company
organized under the laws of the State of [State].
The members agree as follows:
ARTICLE 1
FORMATION
1.1 Formation. The members formed Blue Oak Consulting, LLC by filing
Articles of Organization with the appropriate state agency.
1.2 Name. The name of the company is Blue Oak Consulting, LLC.
1.3 Principal Office. The principal office is located at:
[Business address]
1.4 Registered Agent. The registered agent is:
[Name and address]
1.5 Purpose. The company may conduct any lawful business permitted
under the laws of [State].
The exact language depends on the state and the LLC's ownership structure. An operating agreement is generally an internal company document rather than a filing with the Secretary of State, although state rules can differ. New York, for example, describes the operating agreement as an internal document that is not filed with the Department of State.
Main Sections in a Typical LLC Operating Agreement
1. Company Formation and Purpose
The opening section usually identifies:
- The LLC's legal name
- The state where it was formed
- The formation date
- The registered agent
- The principal business address
- The company's business purpose
- Whether the LLC will continue indefinitely or end after a specified period
The agreement may allow the LLC to conduct any lawful business. It may also describe a particular purpose, such as real estate ownership, consulting or online retail.
2. Members and Ownership Percentages
This section identifies the owners and records each person's interest in the LLC.
For example:
Member Ownership Interest
Sarah Johnson 60%
Michael Lee 40%
Some agreements use membership units instead of percentages:
Sarah Johnson 600 units
Michael Lee 400 units
Total 1,000 units
The ownership schedule may also include each member's address, initial contribution and voting percentage.
Ownership percentages do not always determine every economic right. An agreement may assign profits, losses or distributions differently from the members' ownership interests if the arrangement complies with applicable law and tax rules.
3. Capital Contributions
This section records what each member contributes to the LLC.
Contributions may include:
- Cash
- Equipment
- Real estate
- Intellectual property
- Services, if permitted
- Existing business assets
For example:
Sarah Johnson shall contribute $60,000 to the company.
Michael Lee shall contribute $40,000 to the company.
No member is required to make an additional contribution unless
the members approve the contribution in writing.
The agreement should state whether additional contributions are mandatory, optional or treated as loans to the company.
4. Management Structure
An operating agreement usually states whether the LLC is member-managed or manager-managed.
Member-Managed LLC
The owners participate directly in running the business.
The company shall be member-managed. Each member may participate
in the management and control of the company's business.
Manager-Managed LLC
One or more designated managers handle daily operations. A manager may be a member, employee or outside professional.
The company shall be manager-managed. The initial manager is
Sarah Johnson. The manager has authority to enter contracts,
open bank accounts, hire employees and conduct the ordinary
business of the company.
State law may supply default management rules when the agreement does not address them. IRS materials also recognize that an operating agreement may state whether the members manage the LLC or whether authority goes to one or more managers.
5. Voting and Member Approval
This section explains how members make decisions.
It may cover:
- Whether votes are based on ownership percentage or one vote per member
- The approval level for ordinary decisions
- Decisions that require unanimous consent
- Whether written consent can replace a meeting
- Meeting and notice requirements
For example:
Each member shall vote in proportion to that member's ownership interest.
A majority vote is required for ordinary business decisions.
The following actions require unanimous approval:
(a) admitting a new member;
(b) selling substantially all company assets;
(c) merging or converting the company;
(d) borrowing more than $100,000;
(e) amending this Agreement; and
(f) dissolving the company.
Voting provisions matter most in a multi-member LLC. They determine who can approve major actions and what happens when members disagree.
6. Profits, Losses and Distributions
The agreement should distinguish between allocations and distributions.
- Allocations assign profits and losses for accounting or tax purposes.
- Distributions determine when members receive money.
For example:
The company's net profits and losses shall be allocated to the members
in proportion to their ownership interests.
Cash distributions may be made at times and in amounts approved by
the manager, subject to the company's debts, expenses and reasonable
working-capital needs.
The agreement may also provide for tax distributions. These payments give members money to cover taxes attributed to LLC income when the company retains some cash.
7. Duties, Authority and Limitations
This section sets boundaries around what members and managers can do for the LLC.
It may address:
- Authority to sign contracts
- Authority to open bank accounts
- Spending limits
- Hiring and firing employees
- Reimbursement of business expenses
- Conflicts of interest
- Confidentiality
- Competing businesses
- Indemnification for authorized actions
For example:
No member may bind the company to a loan, guarantee or contract
exceeding $25,000 without prior approval from members holding more
than 50% of the ownership interests.
The agreement should identify who has authority to act for the LLC. Without that language, members may disagree about whether a contract or expense was authorized.
8. Ownership Transfers and Buyout Rules
A typical agreement limits a member's ability to transfer an ownership interest to an outsider.
Common provisions include:
- A right of first refusal
- Approval requirements for new members
- Buyout rights after death or disability
- Rules for divorce, bankruptcy or creditor claims
- Valuation procedures
- Payment terms for a departing member
For example:
A member may not sell or transfer any membership interest to a
third party without first offering the interest to the company and
the other members on the same terms.
A buy-sell provision may explain how the interest is valued. The method could involve an agreed formula, an appraisal or an independent valuation.
9. Books, Records and Taxes
This section usually covers:
- The company's accounting method
- Fiscal year
- Bank accounts
- Financial statements
- Member access to records
- Tax classification
- Responsibility for tax filings
- The partnership representative, when applicable
For federal tax purposes, an LLC may generally be treated as a sole proprietorship, partnership or corporation, depending on its ownership and tax elections. The operating agreement should match the LLC's intended tax treatment.
10. Dissolution and Winding Up
The agreement explains when the LLC may be dissolved and how its remaining assets will be handled.
Common triggers include:
- Member approval
- Sale of the business
- An event listed in the operating agreement
- A court order
- A statutory event under state law
For example:
After the company pays its creditors and establishes reasonable
reserves for liabilities, the remaining assets shall be distributed
to the members according to their positive capital account balances,
unless applicable law requires a different result.
11. Amendments and Miscellaneous Provisions
The final sections often address:
- How the agreement can be amended
- Notices
- Governing law
- Severability
- Entire agreement
- Electronic signatures
- Counterparts
- Waiver of certain rights
- Dispute resolution
The agreement normally ends with signature blocks.
MEMBER:
________________________________
Sarah Johnson
Date: __________________________
________________________________
Michael Lee
Date: __________________________
What a Single-Member Operating Agreement Looks Like
A single-member LLC agreement is usually shorter because it does not need detailed rules for disputes between multiple owners, voting deadlocks or profit sharing.
It commonly includes:
- The owner's name and address
- The LLC's formation details
- The owner's 100% ownership interest
- The owner's management authority
- Capital contributions
- Tax treatment
- Banking and recordkeeping provisions
- Rules for transferring the business or appointing a successor
- Dissolution procedures
- The owner's signature
A basic management clause might say:
The company shall be member-managed. The sole member has complete
authority to manage the company, enter contracts, open bank accounts,
hire personnel and take any lawful action for the company.
What a Multi-Member Operating Agreement Adds
A multi-member LLC agreement needs rules for issues such as:
- Unequal ownership percentages
- Different financial contributions
- Member salaries or guaranteed payments
- Unequal voting power
- Deadlocks
- A member leaving the business
- A member dying or becoming disabled
- New investors
- Additional funding
- Disagreements over distributions
- Selling the company
For example, two members may own an LLC 70/30 but require unanimous approval to sell the business. The operating agreement records that difference.
What an Operating Agreement Is Not
An operating agreement is different from the LLC's Articles of Organization, Certificate of Formation or similar state filing.
- The formation document creates or registers the LLC with the state.
- The operating agreement governs the internal relationship between the LLC and its members.
- The operating agreement generally stays with the company's business records instead of being filed with the state.
An operating agreement also does not replace:
- A business license
- A tax registration
- A partnership or investor agreement
- An employment agreement
- A real estate purchase contract
- A separate buy-sell agreement, when one is needed
The Most Important Drafting Points
A generic operating agreement is only a starting point. The agreement should match the LLC's formation state, management structure, ownership percentages, tax election and financial arrangements.
Pay particular attention to:
- Who can bind the LLC
- How profits and cash distributions work
- What happens when members disagree
- How an owner can leave
- How an ownership interest is valued during a buyout
- Whether additional contributions are required
- Which decisions require unanimous approval
A basic state-specific agreement may be enough for a simple single-member LLC. A multi-member LLC, real estate LLC, professional practice or company accepting outside investment needs an agreement that reflects its actual ownership and funding arrangements.