LLC guide · Set it up
The LLC operating agreement: what it is and what goes in it.
The operating agreement is your LLC's rulebook. It settles ownership, money, and decisions in writing, before anyone needs to argue about them.
6 minute read Reviewed
The short version
- It is an internal contract among the members, usually not filed with the state.
- A few states, including New York and California, expect every LLC to have one.
- Without one, your state's default rules decide for you.
- Single-member LLCs benefit too.
What it does
An operating agreement is a contract among the LLC's members. It sets out who owns the business, how profits and losses are shared, how decisions are made, and what happens when someone joins, leaves, or dies.
If you don't have one, your state's LLC statute fills the gaps with default rules. Those defaults may not match what you and your partners intended.
Is it required?
Most states do not require one, but a small number, including New York and California, expect LLCs to adopt one. Even where it is optional, banks, lenders, and partners often ask to see it, and it is one of the clearest signs that the LLC is a separate business.
What to include
- Members and their ownership percentages.
- Capital contributions: what each member put in, and whether more can be required.
- How profits, losses, and distributions are shared.
- Management structure and who can sign for the LLC.
- Voting: which decisions need a majority and which need everyone.
- Adding members, and limits on selling or transferring an interest.
- Buyout terms for when a member leaves, becomes disabled, divorces, or dies.
- How the LLC is dissolved, and how the agreement itself is amended.
Why a single-member LLC needs one
With one owner there is no one to disagree with, but the agreement still does work. It documents that the LLC is separate from you, supports your liability protection, answers the bank's questions, and says who takes over if you cannot run the business.
Keep it current
Update the agreement when ownership changes, a member joins or leaves, or you change management or tax treatment. Have every member sign the new version and keep it with your records.
This guide is general information, not legal or tax advice. Rules differ by state and change over time, so check your state's official website or a licensed professional before you act. YaH Brands is not a law firm or an accounting firm.
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Common questions
Usually not. Keep it with your business records and share it when a bank or partner asks.
Yes. Many owners start from a template. An attorney is worth it for multi-member LLCs with unequal ownership, investors, or complex buyout terms.
Your state's default LLC rules apply, which may split profits or decide disputes differently than you would.