When you start an LLC, one of the most important documents you’ll create is the operating agreement. Think of it as the rule book for your business. It spells out how the company runs, how money is handled, and what happens if someone leaves or if the business shuts down.
Even if your state doesn’t require one, having an operating agreement is smart. It protects you, sets clear expectations with members, and keeps your business running smoothly. Let’s break down how to write one step by step.
What Is an Operating Agreement?
An operating agreement is a legal document that outlines:
- Your LLC’s structure.
- How profits and losses are split.
- Decision-making rules.
- What happens if a member exits or the company dissolves.
Without it, state default rules decide how your LLC works, and that may not match what you want.
Step 1: Add the LLC’s Legal Name and Address
Start with the basics. Write down your LLC’s full legal name exactly as it’s registered with your state. Include your main business address. This keeps your document aligned with your official filing.
Step 2: Name the Registered Agent
Every LLC needs a registered agent. This is the person or service that receives legal papers for the business. In your operating agreement, list their full name and address.
Step 3: State the Term and Purpose
Decide how long the LLC will exist. Most people set it as “perpetual,” meaning until members choose to dissolve it. Also, define the purpose of the LLC. Keep it broad enough to cover future activities. For example: “The purpose of this LLC is to engage in lawful business activities.”
Step 4: List the Members
Write down each member’s name, address, and ownership percentage. This section also notes who contributed what, cash, property, or services. This makes ownership clear and prevents disputes later.
Step 5: Define How Profits and Losses Are Split
Decide how the money is divided among members. Many LLCs split based on ownership percentages, but you can set different rules if everyone agrees. Spell this out clearly to avoid confusion.
Step 6: Explain Decision-Making Rules
Lay out how major decisions will be made. Some LLCs vote based on ownership percentages, while others give each member one vote. Decide how many votes are needed for important actions like adding a new member or taking out a loan.
Step 7: Record-Keeping
State how the LLC will keep records. Most agreements specify that financial statements, meeting minutes, and membership records will be maintained at the business office.
Step 8: Plan for Dissolution
Every operating agreement should explain what happens if the LLC closes. Include the steps for winding down, paying debts, and distributing remaining assets to members. This avoids messy disputes if the business ends.
Step 9: Add Extra Clauses if Needed
You can include additional rules, such as:
- Rules for transferring ownership.
- How to resolve disputes.
- How to admit new members.
This section is flexible and can be tailored to your business.
Step 10: Sign and Store the Agreement
Once drafted, all members should sign the document. Keep a copy in your business records. Even if it’s not filed with the state, it’s legally binding once signed.
Using LegalZoom for Help
If writing an agreement from scratch feels overwhelming, services like LegalZoom can help. They guide you through a questionnaire and generate a customized operating agreement. This is a great option if you want a professional document without hiring a lawyer.
Starting from $0 + filing fee
Key Features
Affordable Formation Services: LegalZoom offers LLC formation starting at $0 plus state filing fees, providing an accessible option for entrepreneurs to establish their businesses
Comprehensive Support: The platform provides step-by-step guidance throughout the LLC formation process, including assistance with filing articles of organization and obtaining an EIN
Additional Business Services: Beyond formation, LegalZoom offers services such as registered agent representation, operating agreement templates, and compliance tools to help maintain your LLC’s good standing
Why We Recommend It
LegalZoom simplifies the process of forming an LLC, making it accessible even for first-time business owners. With affordable pricing and a range of supportive services, it’s a practical choice for entrepreneurs seeking to establish their businesses efficiently.
Pros & Cons
- User-Friendly Platform: LegalZoom's intuitive interface guides users through each step of the LLC formation process
- Comprehensive Free Plan: Offers a robust free plan with access to most features, suitable for small businesses.
- Accessible Pricing: Starting at $0 plus state fees, LegalZoom provides an affordable entry point for new business owners
- Additional Costs for Extras: While the base formation service is affordable, add-ons like registered agent services and expedited filing come at an extra cost
- Potential for Upselling: Users may encounter upselling of additional services during the sign-up process
- Limited Personalized Legal Advice: LegalZoom provides general legal information but does not offer personalized legal advice unless you opt for additional attorney services
Quick Checklist
- LLC name and address.
- Registered agent information.
- LLC term and purpose.
- Member names, addresses, and ownership percentages.
- Profit and loss distribution rules.
- Voting and decision-making process.
- Record-keeping requirements.
- Dissolution plan.
- Extra clauses (optional).
- Member signatures.
Final Recommendation
An LLC operating agreement is more than paperwork. It protects your business, clarifies roles, and ensures smoother operations. Take the time to draft one now. If you want a head start, use a trusted service like LegalZoom to walk you through the process. Your LLC will run better when everyone knows the rules and that’s exactly what a good operating agreement provides.
