Short answer. You can form an LLC without an operating agreement in many states, but it is risky. Without one, your company runs in a default state. Those rules may not match how you want to run money, roles, or decisions. If a dispute or audit hits, you will wish you had it in writing.
This guide explains what an operating agreement does, what goes wrong if you skip it, and how to fix it fast with a simple, beginner-friendly plan.
Do You Have to File an Operating Agreement With the State?
In most states, you do not file your operating agreement with the state. You keep it internally with your LLC records. A few states strongly recommend or require you to have one on hand. The safe move is to create it on day one and store a signed copy with your company docs.
What an Operating Agreement Actually Does
Think of it as the rule book for your LLC. It sets:
- Ownership and membership interests
- Money rules for profit splits, losses, and distributions
- Management and voting rights
- Capital contributions and how new capital works
- Buyout rules if someone leaves, dies, or sells
- Recordkeeping and banking rules
- Dissolution steps if you shut down
With it, everyone knows the playbook. Without it, you roll the dice with default law.
What Can Go Wrong If You Skip It
1) Default state rules control your money
No agreement means default splits and decision rules may apply. You may owe distributions you did not expect or lose votes you thought you had.
2) Disputes get messy and expensive
Who decides payouts, salaries, or big buys? Without written rules, fights drag on. Lawyers and courts get involved. Costs climb fast.
3) Banking and investors push back
Banks often ask for an operating agreement before opening or updating a business account. Lenders and investors want to see it before wiring funds.
4) Weak liability shield in practice
Courts look at how seriously you run the company. Clear rules, minutes, and separate records help protect the corporate veil. Sloppy or missing basics hurt you.
5) Tax and audit confusion
How do you allocate profits? When do you distribute cash? Who signs the return? An agreement aligns your CPA, bookkeeper, and members.
6) No plan for exits or death
If a member quits, divorces, or dies, what happens to their interest? Without rules, the wrong person may gain control, or the value can get locked up.
7) Hiring and paying owners gets unclear
Are owners on payroll? Are they paid guaranteed payments? Without policy, you risk payroll, benefits, or compliance errors.
Single Member LLCs Still Need One
You might think a one-owner LLC can skip it. Do not. An operating agreement helps:
- Prove separation between you and the business
- Define how profits move from the LLC to you
- Support banking, lending, and merchant setups
- Show intent and structure if there is a dispute or audit
Multi-Member LLCs Need It Even More
More owners mean more risk of misalignment. You want clear answers to:
- Who can sign contracts
- What needs a vote and what does not
- How to resolve deadlocks
- How to buy out a member fairly
- What happens if someone stops contributing
Real World Situations Where It Matters
- A new partner joins and later claims a bigger cut than expected
- Profits spike, and one member demands distributions you planned to reinvest
- A founder leaves and takes clients or IP without a non-compete or buyout rule
- The bank underwrites a loan and asks for your signed agreement and voting rules
- An estate event and a spouse or heir wants control with no buy-sell in place
How to Fix It if You Do Not Have One Yet
1. List the facts
Owners, percentages, capital contributed, planned roles, and how decisions should work.
2. Draft a basic agreement
Use a clear, plain language template and tailor it. Keep sections for ownership, management, voting, money, buyouts, records, and dissolution.
3. Decide voting rules
Which actions need a simple majority, supermajority, or unanimous vote? Examples. Bringing on a new member, taking on debt, or selling the business.
4. Set money rules
Profit allocations, distributions, reserves, owner pay, and tax distributions. Include timing and who approves.
5. Add exit and transfer rules
Right of first refusal, valuation method, payout schedule, and what triggers a forced buyout.
6. Sign it and store it
All members sign. Save a PDF and a printed copy in your company records. Share with your CPA and banker.
7. Review yearly
When facts change, update and sign an amendment.
Essential Clauses Checklist
- Company details and purpose
- Member list and ownership percentages
- Manager-managed or member-managed
- Voting thresholds for key actions
- Capital contributions and future raises
- Profit allocation and distribution policy
- Tax matters partner and filing approach
- Books, records, and banking authority
- Transfer limits, buy-sell, valuation method
- Non-compete or non-solicit if needed
- Indemnification and limitation of liability
- Dissolution and wind-down steps
Banking and Compliance Tips
- Give your bank the signed agreement and a banking resolution that names who can open accounts and sign
- Keep minutes or short memos for major votes
- Keep business and personal finances separate
- Use consistent names and addresses across state, IRS, bank, and vendor records
Final Thoughts
You can form an LLC without an operating agreement, but it is not smart. The document is simple insurance. It reduces drama, protects your liability shield, and speeds up banking, funding, and deals. Write a basic agreement now, even if you are solo. If you have partners, do it before money hits the account. Clear rules today save you big costs and headaches later.
