LLC Operating Agreement Template: What to Include (Free Checklist)

Written by Lisa Matthews, General Manager and Business Compliance Advisor at Next Step Filings. Lisa has over a decade of experience in corporate administration and has helped thousands of entrepreneurs form, maintain, and protect their businesses across 12 U.S. states.

Next Step Filings is a private business services company and does not provide legal advice.

What Is an LLC Operating Agreement?

An LLC operating agreement is a legal document that defines the ownership structure, management rules, financial arrangements, and operating procedures of a limited liability company. Next Step Filings, a compliance-first business services company based in Glen Allen, Virginia, has processed over 20,000 state filings across 12 U.S. states with a 99.8% success rate, and we consistently see that LLCs without an operating agreement face avoidable disputes, bank account complications, and governance confusion.

Think of the operating agreement as the internal rulebook for your LLC. Your Articles of Organization register the LLC with the state. Your operating agreement tells the members (owners) and any third parties how the business actually runs. It covers everything from who contributes capital to how profits are divided to what happens when someone wants out.

Even if your state does not require an operating agreement, you need one. Without it, your LLC is governed by your state's default LLC statute, and those default rules rarely match what business owners actually intend. If you are still deciding on the right business structure, start with our guide on what is an LLC.

Why Every LLC Needs an Operating Agreement

"Most small business owners find out they're out of compliance at the worst possible moment," says Lisa Matthews, General Manager and Business Compliance Advisor at Next Step Filings. The same principle applies to operating agreements. You do not realize you need one until a dispute, a bank requirement, or a tax issue forces the question.

Single-Member LLCs Need One Too

Many single-member LLC owners assume an operating agreement is only for partnerships. That is incorrect. A single-member LLC operating agreement serves several critical functions:

• Liability protection: Courts look at whether an LLC operates as a legitimate separate entity. An operating agreement demonstrates that separation. Without one, a creditor may argue that your LLC is simply your "alter ego" and attempt to "pierce the corporate veil" to reach your personal assets.
• Banking requirements: Many banks require an operating agreement before opening a business account. If you do not have one, you may be turned away at the bank.
• Succession planning: If the sole member becomes incapacitated or dies, the operating agreement can designate who takes over management and ownership.
• Tax elections: If you elect S-Corp taxation for your single-member LLC, the operating agreement documents the terms of that election.

Multi-Member LLCs Cannot Function Without One

For multi-member LLCs, an operating agreement is not optional in any practical sense. Partners need written terms for profit sharing, voting, capital contributions, and exit procedures. Verbal agreements are difficult to enforce and impossible to reference when memories differ.

Next Step Filings has processed formations for thousands of multi-member LLCs, and the ones that face the most complications are those that skipped the operating agreement during formation.

States That Require an Operating Agreement

Most states do not legally mandate an operating agreement, but several do. Even in states without a legal requirement, banks, investors, and courts expect one.

State	Operating Agreement Required?	Relevant Law
New York	Yes (required by law)	NY LLC Law Section 417
California	Yes (required for certain provisions)	Cal. Corp. Code Section 17701.10
Delaware	Not required, but strongly recommended	DE LLC Act Section 18-101(7)
Missouri	Yes (required by statute)	Mo. Rev. Stat. Section 347.081
Maine	Yes (required by statute)	31 MRSA Section 1521
Virginia	Not required, but recommended	Virginia Code S 13.1-1023
Texas	Not required, but recommended	TX Bus. Org. Code Section 101.052
Florida	Not required, but recommended	FL Stat. Section 605.0105

Regardless of your state, Next Step Filings recommends every LLC have an operating agreement in place before the business earns its first dollar of revenue.

Essential Clauses: The Complete Checklist

The following 12 provisions form the backbone of a comprehensive LLC operating agreement. This checklist works for both single-member and multi-member LLCs, though multi-member agreements will be more detailed in the partnership-related sections.

1. LLC Name and Principal Office

State the full legal name of the LLC as registered with the state, the state of formation, and the principal business address. This establishes the identity of the entity governed by the agreement.

2. Purpose of the LLC

Define the business purpose. Most operating agreements use broad language such as "any lawful business activity" to maintain flexibility. However, you can specify a narrower purpose if the members want to restrict the LLC's activities.

3. Member Information and Ownership Percentages

List every member by name with their ownership percentage. For a single-member LLC, this confirms the sole owner. For a multi-member LLC, this documents the precise ownership split and prevents future disputes about who owns what.

Example format:

Member	Ownership Percentage	Initial Capital Contribution
Jane Smith	60%	$60,000
Robert Johnson	40%	$40,000

4. Capital Contributions

Document each member's initial contribution (cash, property, or services) and specify the process for additional capital calls. Key questions to answer:

• What was each member's initial contribution?
• Can the LLC require additional contributions in the future?
• What happens if a member cannot meet a capital call?
• Are loans from members treated differently from capital contributions?

5. Profit and Loss Distribution

Specify how profits and losses are allocated among members. This does not have to match ownership percentages. The IRS allows "special allocations" under IRC Section 704(b) as long as they have substantial economic effect.

Also address the timing and frequency of distributions. Common approaches include:

• Quarterly distributions based on available cash
• Annual distributions after year-end accounting
• Mandatory "tax distributions" to cover each member's tax liability on pass-through income
• Manager discretion on distribution timing

6. Management Structure

Declare whether the LLC is member-managed or manager-managed. This is one of the most consequential decisions in the operating agreement.

Member-managed: All members have authority to act on behalf of the LLC. Best for small, active partnerships.

Manager-managed: Only designated managers can bind the LLC. Best for LLCs with passive investors or where one partner handles day-to-day operations.

Specify who the managers are (if manager-managed), how managers are appointed and removed, and what compensation managers receive.

7. Voting Rights and Decision-Making

Define how the LLC makes decisions. Establish thresholds for different types of decisions:

• Ordinary decisions (hiring, purchasing, daily operations): Simple majority or manager authority
• Major decisions (taking on debt over a specified amount, entering contracts above a threshold, admitting new members): Supermajority (66% or 75%)
• Fundamental decisions (selling the business, dissolving the LLC, amending the operating agreement): Unanimous consent

8. Transfer Restrictions

Restrict how members can sell or transfer their ownership interests. Most operating agreements include a "right of first refusal" requiring a selling member to offer their interest to existing members before approaching outside buyers.

Key provisions to include:

• Right of first refusal for existing members
• Approval requirements for transfers to outside parties
• Distinction between economic interests and management rights
• Permitted transfers (to trusts, family members, or estate planning entities)

9. Buyout Provisions

Establish what happens when a member wants to leave, retires, is expelled, becomes disabled, or dies. A buyout provision (sometimes called a "buy-sell agreement") should address:

• Triggering events: Voluntary withdrawal, death, disability, bankruptcy, divorce
• Valuation method: Book value, fair market value, formula-based, or independent appraisal
• Payment terms: Lump sum, installments over 2 to 5 years, or a combination
• Funding: Life insurance policies on members, LLC reserves, or member financing

This is the clause that prevents the most devastating disputes. Without a buyout provision, a deceased member's interest may pass to heirs who have no knowledge of or interest in the business.

10. Dissolution and Winding Up

Define the conditions that trigger dissolution and the process for winding up the LLC's affairs. Common dissolution triggers include:

• Vote by a specified percentage of members
• Expiration of a defined term
• Death or withdrawal of a member (unless the agreement provides for continuation)
• Court order

The winding-up process should address paying debts, distributing remaining assets, and filing the Articles of Dissolution with the state. Next Step Filings handles dissolution filings across 12 states with the same 24 to 48 hour turnaround that applies to formations.

11. Amendment Procedures

Specify how the operating agreement itself can be changed. Most agreements require unanimous consent or a supermajority vote to amend. Without this clause, any change becomes a negotiation without clear rules.

12. Dispute Resolution

Include a mechanism for resolving member disputes before they reach court. Options include:

• Mediation: A neutral third party helps members reach a voluntary agreement
• Arbitration: A neutral arbitrator makes a binding decision
• Governing law: Specify which state's laws apply

Mediation and arbitration are typically faster and less expensive than litigation. Specifying arbitration in your operating agreement can save the LLC tens of thousands of dollars in legal fees.

Single-Member vs Multi-Member Operating Agreements

While both types of LLCs benefit from an operating agreement, the complexity and focus areas differ significantly.

Provision	Single-Member LLC	Multi-Member LLC
Ownership	Confirms sole ownership	Lists all members with percentages
Profit distribution	All profits to the single member	Split per agreement (may differ from ownership %)
Management	Sole member manages	Member-managed or manager-managed
Voting	Not applicable	Majority, supermajority, or unanimous rules
Buyout provisions	Succession plan only	Detailed buyout, valuation, and payment terms
Transfer restrictions	Optional	Essential (right of first refusal)
Dispute resolution	Not applicable	Mediation or arbitration clause
Length	3 to 8 pages	10 to 30+ pages

A single-member operating agreement focuses on establishing the LLC as a separate legal entity, documenting the member's authority, and providing succession instructions. A multi-member operating agreement is a comprehensive governance document that replaces verbal understandings with enforceable written terms.

Common Mistakes in LLC Operating Agreements

Next Step Filings has supported over 20,000 filings, and we see the same operating agreement mistakes repeatedly. Avoid these pitfalls:

Mistake 1: Using a Generic Template Without Customization

Free templates found online provide a starting point, but they are written for the most generic scenario possible. They rarely account for your state's specific default rules, your industry's unique requirements, or your members' actual arrangement. A template that allocates profits 50/50 does not help a three-member LLC where contributions are unequal.

Mistake 2: Failing to Address Member Departures

Most operating agreement disputes arise when a member wants to leave (or must leave). If the agreement does not specify a valuation method, a payment timeline, and a right of first refusal, the departure becomes a negotiation with no framework. This often leads to litigation.

Mistake 3: Ignoring Tax Distribution Obligations

Multi-member LLC members owe income tax on their share of the LLC's profits regardless of whether they receive a distribution. An operating agreement that does not require minimum "tax distributions" can leave members owing taxes on income they never received. This creates resentment and cash flow problems.

Mistake 4: Not Updating the Agreement After Changes

Operating agreements are living documents. When you add a member, change the profit split, bring in a manager, or shift the business direction, the agreement should be updated. An outdated operating agreement is nearly as problematic as not having one at all.

Mistake 5: Skipping the Agreement Entirely

This is the most common and most damaging mistake. Without an operating agreement, your LLC is governed entirely by your state's default LLC statute. Those defaults may dictate equal profit splitting regardless of contribution, equal voting power regardless of ownership, and no restrictions on member transfers. These defaults rarely reflect the founders' intentions.

"Compliance doesn't slow down a startup. Unmanaged regulatory debt does," says Lisa Matthews of Next Step Filings. The same applies to internal governance. Taking the time to draft an operating agreement at formation prevents problems that are far more expensive to solve later.

Operating Agreement Checklist

Use this checklist to ensure your LLC operating agreement covers all essential provisions. Print it, review it with your co-members, and confirm every item before signing.

1. LLC identification: Full legal name, state of formation, date of formation, registered agent, principal address
2. Purpose: Business purpose (broad or specific)
3. Members: Names, addresses, and ownership percentages of all members
4. Capital contributions: Initial amounts, form (cash/property/services), and future call provisions
5. Profit and loss allocation: Distribution ratios, frequency, and tax distribution requirements
6. Management structure: Member-managed or manager-managed, with named managers if applicable
7. Voting rights: Thresholds for ordinary, major, and fundamental decisions
8. Compensation: Manager salaries, guaranteed payments, expense reimbursement policies
9. Transfer restrictions: Right of first refusal, approval requirements, permitted transfers
10. Buyout provisions: Triggering events, valuation method, payment terms, funding mechanism
11. Dissolution terms: Triggers, winding-up process, asset distribution order
12. Amendment procedures: Vote threshold required to change the agreement
13. Dispute resolution: Mediation, arbitration, governing law
14. Books and records: Accounting method, fiscal year, member inspection rights
15. Indemnification: Protection for members and managers acting in good faith
16. Non-compete and confidentiality: Restrictions on members competing with the LLC or disclosing proprietary information

For multi-member LLCs, every item on this list should be discussed, negotiated, and documented. For single-member LLCs, items 1 through 6, 10 through 11, and 14 are the minimum.

How to Create Your Operating Agreement

You have three main options for creating your LLC operating agreement:

Option 1: DIY with a Template

Free and paid templates are available online. This is the lowest-cost option (often free to $50), but it carries the highest risk of missing state-specific requirements or partnership-specific provisions. If you use a template, customize it thoroughly. Do not leave placeholder language in the final document.

Option 2: Attorney-Drafted

A business attorney will draft a customized operating agreement tailored to your state, industry, and membership structure. Cost typically ranges from $500 to $2,500 depending on complexity. This is the best option for multi-member LLCs with significant capital, unequal contributions, or complex profit-sharing arrangements.

Option 3: Online Legal Service

Services like LegalZoom and Rocket Lawyer offer operating agreement templates with guided questionnaires. Cost ranges from $50 to $300. These provide more customization than a raw template but less than a custom attorney draft.

Regardless of which option you choose, make sure the final document is signed by all members and stored securely. Keep copies with your LLC's formation documents, your certificate of good standing, and your EIN confirmation letter.

Connecting Your Operating Agreement to Ongoing Compliance

An operating agreement is not a standalone document. It connects directly to your LLC's ongoing compliance obligations. Next Step Filings helps LLC owners stay compliant after formation with annual renewal services across 12 states.

Here is how your operating agreement intersects with compliance:

• Annual filings: Your operating agreement should designate who is responsible for ensuring annual reports and renewal fees are filed on time. A missed filing under Virginia Code S 13.1-1062 triggers administrative dissolution.
• Registered agent: The agreement should name the registered agent and establish the process for changing the agent if needed.
• Tax filings: Multi-member LLCs must file Form 1065 by March 15. The operating agreement should clarify who is responsible for engaging the accountant and ensuring timely filing.
• State changes: If the LLC moves to a new state, adds members, or changes its name, the operating agreement must be amended and corresponding state filings must be submitted.

Frequently Asked Questions About LLC Operating Agreements

Is an operating agreement required for an LLC?

It depends on the state. New York, California, Maine, and Missouri require an operating agreement by law. Most other states do not legally mandate one, but strongly recommend it. Regardless of legal requirements, every LLC should have an operating agreement. Banks often require one to open a business account, and courts consider it evidence that the LLC is a legitimate separate entity. Next Step Filings recommends having an operating agreement in place before your LLC conducts any business.

Can I write my own LLC operating agreement?

Yes. There is no legal requirement to hire an attorney to draft your operating agreement. Many single-member LLC owners successfully create their own using a template. However, for multi-member LLCs with complex profit-sharing, capital contribution, or buyout arrangements, professional legal assistance is worth the investment. A poorly drafted agreement can create more problems than no agreement at all. At minimum, have your state's specific LLC default rules in front of you while drafting so you know what provisions to override.

What happens if my LLC does not have an operating agreement?

Without an operating agreement, your LLC is governed by your state's default LLC statute. These defaults may include equal profit splitting regardless of capital contributions, equal voting rights regardless of ownership percentages, and no restrictions on transferring membership interests. For single-member LLCs, the absence of an operating agreement weakens the legal separation between you and the LLC, increasing the risk of veil piercing. Next Step Filings has processed over 20,000 filings and consistently recommends an operating agreement as part of every LLC formation.

How often should I update my LLC operating agreement?

Update your operating agreement whenever there is a material change to the LLC's structure, membership, or operations. Common triggers include adding or removing a member, changing the profit distribution formula, switching from member-managed to manager-managed (or vice versa), bringing on outside investors, moving the LLC to a different state, or electing a different tax classification. At minimum, review the agreement annually alongside your annual compliance filings.

Does a single-member LLC need an operating agreement?

Yes. While a single-member LLC does not need the partnership-related provisions (profit splits, voting, buyouts), it still benefits from documenting the member's authority, establishing the LLC as a separate entity, and providing succession instructions. Many banks require an operating agreement to open a business bank account for a single-member LLC. Without one, a court may be more likely to "pierce the corporate veil" in a lawsuit, exposing your personal assets to business liabilities.

Can an LLC operating agreement be changed after formation?

Yes. Operating agreements can be amended at any time by following the amendment procedure specified in the agreement itself. Most agreements require unanimous consent or a supermajority vote of members. If the original agreement does not include an amendment procedure, you will typically need the consent of all members. Document all amendments in writing, have all members sign, and keep amendments attached to the original agreement.

Where should I keep my LLC operating agreement?

Store your operating agreement with your other critical LLC documents, including your Articles of Organization, EIN confirmation letter, and annual filing records. Keep both a physical copy in a secure location and a digital copy backed up to cloud storage. Every member should have their own signed copy. You will need to produce the operating agreement when opening bank accounts, applying for business loans, responding to legal proceedings, or completing certain state filings.

Get Your LLC Foundation Right

An operating agreement is not paperwork for the sake of paperwork. It is the document that protects your investment, defines your partnership, and prevents the disputes that destroy businesses. For married couples forming together, see our dedicated guide on LLCs for husband and wife. Whether you are a single-member LLC owner looking to strengthen your liability protection or a group of partners building a business together, putting your terms in writing is the smartest step you can take after formation.

Next Step Filings helps LLC owners across 12 U.S. states get their formation and compliance filings right, with 24 to 48 hour turnaround and a 99.8% success rate on over 20,000 filings. We handle the state paperwork so you can focus on building your business and documenting the partnership terms that matter.

Start your LLC formation with Next Step Filings and take the next step toward a properly structured, fully compliant business.