LLC Operating Agreements and Templates

Introduction

An operating agreement is one of the most important internal legal documents for an LLC, yet it is often overlooked during formation. At Ebizfiling, we frequently see businesses face avoidable disputes because this document was missing, outdated, or poorly drafted.

An LLC operating agreement clearly defines ownership, management roles, and decision-making authority from the start. Even in states where it is not legally mandatory, a properly drafted operating agreement helps protect the LLC’s structure and supports limited liability when governance is questioned.

What Is an LLC Operating Agreement?

An LLC operating agreement is a legal document that outlines how an LLC operates internally. It covers ownership percentages, member roles, voting rights, profit distribution, and exit rules.

According to state level business regulations, this document governs the internal affairs of the LLC rather than public filings. It acts as a private contract between members and protects the LLC structure if disputes arise.

Do I Need an Operating Agreement for My LLC?

Not all US states legally require an operating agreement to form an LLC. However, states like California and New York require LLCs to have an operating agreement, whether written or oral.

States such as Delaware do not mandate it, but they legally recognize operating agreements as binding contracts. In practice, almost every LLC should have one. Without an operating agreement, state default rules apply, which may not align with the owners’ intentions or business structure.

Why the Operating Agreement Is Important?

An operating agreement plays a key role in establishing governance clarity. It helps define authority, reduces the risk of internal disputes, and supports limited liability when combined with proper compliance and conduct.

Based on real compliance cases handled at Ebizfiling, most LLC disputes arise from unclear profit-sharing terms or undefined decision-making authority. A properly drafted operating agreement strengthens credibility during audits, banking, and fundraising.

Do Corporations Have Operating Agreements?

No. Corporations do not use operating agreements. Instead, they are governed by bylaws.

While both documents regulate internal management, operating agreements offer LLCs more flexibility compared to corporate bylaws, especially in structuring ownership and profit allocation.

Can I Create My Own Operating Agreement?

Yes. Many founders start with an operating agreement template or a free format. While templates can be legally valid, they are generic and may miss state-specific or business-specific clauses.

As compliance professionals often observe, poorly customized agreements can weaken governance clarity and increase legal risk. Customization based on state law, ownership structure, and tax classification is strongly recommended.

How to Amend an Operating Agreement?

An operating agreement can be amended when business circumstances change, such as adding members, changing profit ratios, or modifying management structure. The amendment process depends on the terms of the original agreement and applicable state law.

In most cases, amendments require member or manager approval as defined in the agreement. Amendments should be documented in writing and retained with company records. Signature requirements depend on the agreement terms and are not universally mandated by law.

Does an Operating Agreement Need to Be Notarized?

In most states, notarization is not legally required for an operating agreement. However, banks or investors may request a notarized copy for verification.

From a best-practice perspective, notarization can add credibility, though it is not a legal requirement.

Types of LLC Operating Agreements

Operating agreements vary based on ownership and management structure. Based on common compliance scenarios, the most common types include:

1. Single-Member LLC Operating Agreement: Used when one owner controls the LLC. It helps establish separation between the owner and the business, which banks and courts may review when assessing liability protection.
2. Multi-Member LLC Operating Agreement: Applies when two or more members own the LLC. It defines capital contributions, profit-sharing, voting rights, and exit provisions, which are critical for preventing disputes.
3. Member-Managed LLC Operating Agreement: All members actively manage operations. The agreement defines responsibilities and decision limits.
4. Manager-Managed LLC Operating Agreement: Members appoint one or more managers to run the business. This structure separates ownership from control and is commonly used when investors are passive.
5. Operating Agreement for Foreign-Owned LLCs: There is no separate legal format mandated for foreign-owned LLCs. However, additional clauses for authority delegation, compliance coordination, and tax reporting are commonly included as a best practice, especially for Indian founders operating US LLCs.

How to Customize an Operating Agreement Template?

When customizing an operating agreement template, key elements include:

1. Company details: Exact legal name, formation state, and registered office
2. Member information: Ownership percentages and capital contributions
3. Management structure: Member-managed or manager-managed
4. Profit and loss allocation: Clear percentages and timing
5. Voting rules: Approval thresholds for major decisions

How Ebizfiling Helps with LLC Operating Agreements?

Ebizfiling gets into the following process:

1. Drafts state-compliant LLC operating agreements
2. Customizes agreements based on ownership and management structure
3. Defines profit-sharing, capital contributions, and financial rights
4. Prepares amendment documentation and resolutions
5. Adapts agreements for foreign-owned and Indian-managed LLCs
6. Aligns agreements with banking, investor, and compliance requirements

In short,

An LLC operating agreement is not a mere formality. It is the foundation of internal governance and decision-making. Whether for a single-member LLC or a multi-member structure with overseas owners, a properly drafted operating agreement helps prevent disputes and supports compliance.

While templates provide a starting point, real protection comes from customization aligned with state law and business realities. At Ebizfiling, we help businesses draft and maintain operating agreements that reflect how the company actually operates.

Frequently Asked Questions on LLC Operating Agreements