What an operating agreement is
An operating agreement is the private contract that sets the rules for your LLC. It records who owns the company and in what shares, who makes decisions, how profits and losses are allocated, what happens if a member wants to leave or dies, and how the company can be dissolved. It is not filed with the state. You sign it and keep it with your company records.
Without one, your state's default LLC statute fills the gaps. Those defaults may not match what you and your partners agreed, and they were not written with a founder in Lagos or Pune and a co-founder in Toronto in mind.
Is it legally required?
Most states do not require a written operating agreement, but a few set specific rules. New York's LLC Law, for example, says members must adopt a written operating agreement, and allows it to be entered into before, at, or within 90 days after the articles of organization are filed. Even where it is optional, banks, fintech platforms and payment processors routinely ask for a copy when you open an account, and it is one of the first documents a court looks at if someone questions whether your LLC is truly separate from you.
Who this is for
- Single-member LLC owners who need a signed agreement for a bank or Stripe application.
- Co-founders forming a multi-member LLC who want ownership, vesting-style buyback terms and deadlock rules written down.
- Existing LLCs that never adopted an agreement, or used a generic template that no longer fits.
- LLCs changing from member-managed to manager-managed, or bringing in a new member.
What goes into a good agreement
- Ownership and capital. Each member's percentage and what they contributed, in cash, property or services.
- Management. Whether all members manage, or one or more managers do, and what decisions need a vote.
- Allocations and distributions. How profits and losses are shared, and when cash can be paid out.
- Transfers. Whether members can sell their share and whether the others have a right of first refusal.
- Exit events. Buyout terms on death, disability, resignation or removal of a member.
- Deadlock. What happens when two equal members disagree.
- Dissolution. How the company is wound up and assets are distributed.
- Tax matters. For multi-member LLCs, who acts as partnership representative with the IRS.
What BookMyLLC handles
- A short questionnaire covering ownership, management and exit preferences.
- Drafting of a single-member or multi-member agreement under the law of your LLC's state.
- Clauses for member-managed or manager-managed structures.
- One round of revisions after you review the draft.
- A final version ready for electronic or wet signature.
- Digital delivery to your dashboard, alongside your formation documents.
Step-by-step process
- Questionnaire. You tell us who the members are and how you want the company run.
- Draft. We prepare an agreement based on your LLC's state and your answers.
- Review. You and any co-members read it and send questions or changes.
- Final version. Changes are incorporated and the agreement is finalized.
- Signature. All members sign and date it, and you keep it with your company records.
Documents and information you need
- Your LLC's exact legal name, state and formation date from the articles.
- Full names and addresses of every member.
- Ownership percentages and initial contributions.
- Who will manage the company and sign on its behalf.
- Any special terms you have agreed, such as a founder buyback or a restriction on selling shares.
Timeline
A single-member agreement is typically delivered within a few business days of receiving your questionnaire. Multi-member agreements usually take longer because every member needs to review the draft, and the timeline mostly depends on how quickly all members respond.
Common mistakes to avoid
- Copying a template from another state. LLC law differs between states, and some default rules cannot be overridden.
- Leaving out the exit. Most founder disputes happen when someone wants to leave, so agree the buyout terms while everyone is on good terms.
- Mismatched names. The LLC name and member names must match your articles and bank records.
- Never updating it. When ownership changes, amend the agreement and your records at the same time.
- Treating it as tax advice. Allocation clauses in multi-member agreements have tax effects, so have a CPA review them.
This page is general information, not legal advice. For complex arrangements, such as investor members or profit interests, have a US attorney review the final agreement.
How banks and platforms use it
When you apply for a US business account or a payment gateway, the reviewer uses the operating agreement to confirm two things: who owns at least 25 percent of the company, and who has authority to open accounts and sign for it. If the agreement, your articles and your application disagree on names or percentages, expect follow-up questions or a rejection. Keep one signed copy in PDF, dated, with every member's full legal name exactly as it appears on their passport.
Single-member versus multi-member agreements
A single-member agreement is short. Its main jobs are to show that the company is separate from you, that you have authority to sign for it, and what happens to the company if you die or become incapacitated. That last point matters more than most owners think, because without it your heirs may struggle to take control of the company's bank account.
A multi-member agreement does much more. It is the only document that stops a 50/50 disagreement from freezing the business, sets a fair price when one founder leaves, and decides whether profits can be kept in the company or must be distributed to cover each member's taxes.
Related services
Read our complete operating agreement guide. If you are still setting up, see LLC formation, and if a member is joining or leaving, see adding a partner. Fees are on the pricing page.
Operating agreement at a glance
| Question | Short answer |
|---|---|
| What it is | The internal contract that sets how the LLC is owned and run. |
| Filed with the state? | No. It is kept with the company records. |
| Who signs | All members. |
| Why banks ask for it | It proves who owns the company and who may sign for it. |
| When to update it | When ownership, management or capital contributions change. |
Clauses worth reading before you sign
| Clause | What it settles |
|---|---|
| Ownership percentages | Who owns what and how it changes. |
| Capital contributions | What each member puts in and whether more can be required. |
| Management | Whether members or appointed managers make decisions, and which decisions need a vote. |
| Distributions | When and how profits are paid out. |
| Transfers and exit | What happens if a member wants to leave, dies or sells. |
| Dispute process | How disagreements are resolved before a lawsuit. |
Single-member LLCs benefit too: a signed agreement strengthens the separation between you and the company, which is the point of forming one.
Why even a single-member LLC should have one
A single-member LLC has no co-owners to argue with, so it is tempting to skip the agreement. The document still does real work. It records that the company is a separate entity with its own rules, which supports the liability protection an LLC offers. Banks and payment processors ask to see it to confirm who owns the company and who may sign for it. And if you later bring in a partner or sell, the agreement is the starting point of due diligence.
For multi-member LLCs it matters even more. Without a written agreement, state default rules decide how decisions are made and profits are shared, and those defaults rarely match what the owners had in mind.
When to review the agreement
- A new member joins or someone leaves.
- Capital contributions or profit-sharing change.
- You switch from member-managed to manager-managed.
- You elect a different tax treatment for the LLC.
Keep each signed version in your company records. For companies formed with us, see LLC formation to add the agreement from the start.
