LLC Operating Agreement: What to Include in 2026

An LLC operating agreement is the single most important document your business will ever have — and the one most commonly skipped, rushed, or treated as a formality. Thousands of business disputes, dissolved partnerships, and lost liability protections trace back to a missing or inadequate operating agreement.

This guide tells you exactly what to include, section by section. We cover both single-member and multi-member LLCs, explain what happens if you skip it, and give you a clear answer on when a free template is fine vs when you need an attorney. Before you start, make sure you've followed our step-by-step guide on how to form an LLC and chosen the right state — see best states to form an LLC.

What is an LLC operating agreement?

An LLC operating agreement is a private legal document — not filed with the state, not part of the public record — that governs how your LLC operates. It defines who owns the company, how decisions are made, how profits are distributed, and what happens when a member wants to leave, becomes incapacitated, or dies.

Think of it as the combination of a shareholder agreement, a partnership agreement, and your company's internal rulebook — all in one document. It exists between the members and the company, and it overrides your state's default LLC rules wherever the two conflict.

Why it matters more than most people think:

• It overrides state defaults — without one, your state's generic LLC law fills in every gap, often in ways you wouldn't choose if you understood the implications
• It proves your LLC is a real entity — courts look for evidence that an LLC is genuinely separate from its owner; an operating agreement is strong evidence
• Banks require it — virtually every bank will ask for it when opening a business account for a multi-member LLC
• Investors and lenders read it carefully — anyone considering putting money into or lending to your business will review this document
• It prevents the most common partnership disputes — clearly written provisions resolve the arguments before they happen

What happens if you don't have an operating agreement?

Your state's default LLC statutes take over. These vary by state, but common defaults include:

• Equal profit distribution regardless of ownership percentage — in some states, a 90% owner and a 10% owner split profits 50/50 by default
• Equal voting rights regardless of investment — one member, one vote, no matter how much each contributed
• Any member can bind the LLC to contracts — without restriction
• Death or departure of a member may trigger dissolution — in some states, a member leaving can force the company to wind down
• No restrictions on members transferring their ownership to outside parties — a departing partner can sell their interest to a competitor

Single-member vs multi-member: what changes

Single-member LLC operating agreements are simpler — you don't need to address profit splits between partners, voting procedures, or buy-sell provisions. But they still serve critical functions:

• Prove the LLC is a genuine separate entity — critical for maintaining liability protection
• Required by most banks to open a business account
• Address succession — what happens to the LLC if you die or become incapacitated
• Establish management authority — who can make decisions on behalf of the LLC
• Required by lenders, investors, and some government agencies

Multi-member LLC operating agreements cover all of the above plus the complex interpersonal and financial arrangements between co-owners. This is where the document becomes truly essential — and where DIY templates have the most serious limitations.

The complete operating agreement: section by section

Section 1: Basic information

Establishes the foundational facts about your LLC. Include:

• LLC name — exactly as registered with your state
• State of formation
• Principal place of business — full address
• Date of formation
• Registered agent name and address (see our guide to registered agents)
• Business purpose — usually 'to engage in any lawful business activity permitted under the laws of [State]'
• Term — typically 'perpetual' meaning no fixed end date

Section 2: Members and membership interests

Identifies who owns the LLC and how much. For each member:

• Full legal name and address
• Membership interest percentage (e.g., 60%, 40%)
• Capital contribution — the money, property, or services each member contributed to receive their interest
• Whether additional capital contributions can be required, and under what conditions

Section 3: Management structure

LLCs choose between two management structures — define yours clearly:

Member-managed: All members participate in day-to-day decisions and operations. Best for small businesses where all owners are actively involved. Each member has authority to bind the LLC to contracts and make operational decisions.

Manager-managed: One or more designated managers (who may or may not be members) run the business. Other members are passive investors without day-to-day authority. Best for businesses with silent investors or where you want a clear chain of command.

Define specifically: who the manager(s) are, what authority they have, how they're appointed or removed, and what compensation (if any) they receive for management services.

Section 4: Voting rights and decision-making

One of the most consequential and most poorly drafted sections in typical LLC agreements. Address every type of decision:

Decisions requiring simple majority (more than 50%):

• Approval of annual budgets
• Entering contracts above a defined threshold
• Hiring and firing employees
• Opening or closing bank accounts

Decisions requiring supermajority (75% or higher):

• Taking on significant debt above a defined threshold
• Making major capital expenditures
• Entering into long-term leases or contracts
• Significant changes to business operations or strategy

Decisions requiring unanimous consent:

• Admitting new members
• Amending the operating agreement
• Selling the company or its major assets
• Dissolving the LLC
• Any action that changes member percentages or rights

Also specify: whether voting is per-capita (one member, one vote) or proportional to membership interest. Most well-drafted agreements use proportional voting — the member with 60% has 60% of the votes.

Section 5: Profit and loss distribution

How money flows to members. Cover all of these:

• Allocation — how profits and losses are allocated for tax purposes (usually pro-rata to membership interest)
• Distributions — when cash is actually paid out to members (at manager/member discretion, quarterly, annually, or triggered by events)
• Tax distributions — the most commonly forgotten provision in multi-member LLCs
• Priority distributions — whether any member has preference over others in distributions
• Reinvestment — under what circumstances distributions can be withheld for business needs

Section 6: Transfer restrictions and buy-sell provisions

The section that prevents the most devastating business disputes. Without it, a departing member can sell their interest to anyone — including your competitor. Cover all of these:

Right of first refusal: Before any member can sell or transfer their interest to an outside party, they must first offer it to the remaining members at the same price and terms. Define the timeline for existing members to exercise this right (typically 30–60 days).

Buyout triggers — the events that require or allow a member to be bought out:

• Voluntary departure
• Death
• Permanent disability
• Bankruptcy or insolvency
• Divorce (if a court awards membership interest to a non-member spouse)
• Termination for cause (breach of the operating agreement, criminal conviction, etc.)

Buyout pricing — how the company is valued when a trigger occurs:

• Fixed formula: e.g., 3x trailing 12-month EBITDA
• Independent appraisal: each side appoints an appraiser; if they can't agree, the two appraisers select a third
• Book value: the member's share of net assets on the balance sheet (often undervalues a profitable going concern)
• Negotiated: members negotiate in good faith with a defined fallback if they can't agree

Drag-along rights: If members holding X% of the LLC want to sell the company, they can require minority members to sell too — at the same price and on the same terms.

Tag-along rights: If majority members sell, minority members have the right to join the sale on the same terms.

Section 7: Member duties and non-compete provisions

• Duty of loyalty — members must act in the best interest of the LLC, not their own competing interests
• Duty of care — members must make decisions with reasonable care and in good faith
• Non-compete clause — restricts members from operating or investing in competing businesses during membership and for a defined period after departure. Note: California prohibits non-competes; other states have varying enforceability
• Non-solicitation — restricts departing members from soliciting the LLC's clients or employees
• Confidentiality — members must protect the LLC's confidential information and trade secrets

Section 8: Dissolution and winding up

• What events trigger dissolution: unanimous member vote, court order, statutory requirement
• Process for winding up: paying debts first, then distributing remaining assets to members
• Order of distribution: creditors first, then members in proportion to their positive capital account balances
• Who manages the winding up process

Section 9: Miscellaneous provisions

• Governing law — which state's laws govern the agreement
• Amendment procedure — what vote is required to change the operating agreement
• Entire agreement clause — this document supersedes all prior oral or written agreements
• Severability — if one provision is invalid, the rest remains in force
• Dispute resolution — arbitration, mediation, or litigation; governing jurisdiction
• Notice requirements — how official notices must be delivered between members

What most owners forget to include

Template vs attorney: how to decide

The template vs attorney decision ultimately comes down to: what is the worst-case cost of getting this wrong? For a single-member LLC with simple operations, the downside of an imperfect template is modest. For a 50/50 partnership with no clear deadlock resolution or buyout mechanism, the cost of a dispute can be catastrophic — easily exceeding $50,000 in legal fees and lost business value.

How to execute and maintain your operating agreement

Execution:

• All members must sign — in most states, signatures from all members are required to make the agreement binding
• Date the agreement — use the effective date, which may be the date of formation or the date of signing
• Notarization — not required in most states for LLCs, but required if the agreement includes real estate transfers
• Make copies — every member should receive a signed copy; keep the original in your business records

Maintenance — the ongoing obligation most owners ignore:

• Review annually — business circumstances change; your operating agreement should reflect current reality
• Update after major events — adding a member, removing a member, changing ownership percentages, or significantly changing business operations should all trigger an amendment
• Amendment process — follow the amendment procedure specified in the agreement itself (typically a vote meeting the defined threshold, followed by a written amendment signed by all required members)
• Version control — clearly label amendments and keep a complete history with dates

Frequently asked questions

Is an operating agreement legally binding?

Yes — once signed by all members, it's a binding contract enforceable in court. Even in states that don't legally require an operating agreement, the document is fully enforceable once executed.

Can I amend my operating agreement after forming the LLC?

Yes — you can amend it at any time following the amendment procedure in the agreement. The process typically involves a member vote meeting the specified threshold, followed by a written amendment signed by all required parties. Keep all amendments on file with your original agreement.

Bottom line

Your operating agreement is not a bureaucratic formality — it's the document that determines what your business actually is, who controls it, and what happens in every difficult scenario you hope never occurs. The time to write it is now, before any disputes arise, while all parties are aligned and optimistic.

For single-member LLCs: use a template, spend 30 minutes customizing it to your situation, sign it, and store it with your formation documents. For multi-member LLCs: treat this document with the seriousness it deserves. The cost of a proper attorney-drafted operating agreement is trivial compared to the cost of a partnership dispute with an inadequate one.