The internal governing document of an LLC that defines member rights, ownership percentages, decision-making rules, and what happens when someone leaves.
An Operating Agreement is the foundational document for any LLC. It sets the rules for how the business operates: who owns what percentage, how decisions are made, what each member's responsibilities are, how profits and losses are allocated, and what happens if a member wants to leave, sell their interest, or dies.
Even if your state doesn't legally require an Operating Agreement, you should always have one. Without it, disputes between members are governed by your state's default LLC statutes, which are designed for generic situations and almost never match what the founders actually intended. For example, some state defaults give every member an equal vote regardless of ownership percentage — a disaster if one founder owns 70% and another owns 30%.
The Operating Agreement should cover at minimum: member names and ownership percentages, voting rights and decision-making thresholds, capital contributions, how profits and distributions work, what happens if a member wants to exit, buy-sell provisions (how one member can buy out another), and dissolution procedures. For multi-member LLCs, this document is as important as the entity itself.