the purpose of an operating agreement
The operating agreement is an internal document that outlines the ownership of your LLC and how your business will be run. It is an especially important document for multi-member LLCs, as it establishes a legal framework for the business partnership.
In some states, LLCs are required by law to have an operating agreement in place. To learn more, read our article.
HOW TO DRAFT AN OPERATING AGREEMENT
The contents of an LLC operating agreement differ depending on the number of owners in your LLC. If you are a sole-owner of your business, then you need an operating agreement for a single-member LLC. If your business has multiple owners, then you will need one for a multi-member LLC.
Generally speaking, an operating agreement should address the following six topics:
- Organization of your LLC. Who are the LLC members, and what are their shares of ownership?.
- Management. Who is responsible for running the business? How will major business decisions be made?
- Capital Contributions. How will the operations of the LLC be funded?
- Distributions. How will the profits of the LLC be distributed among the owners?
- Membership Changes. Will the LLC be able to add new members later on? What is the process for removing an existing LLC member?
- Dissolution. If and when the owners decide to dissolve the LLC, how will that happen?
Although there are other minor topics that can be included in an operating agreement, these six sections are the most important.
To begin drafting your LLC operating agreement, simply create a free account and get started using our operating agreement tool.Create An Account
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sINGLE-MEMBER LLC OPERATING AGREEMENT
Once you’re logged in, you simply fill out the basic information about your business to generate your free operating agreement.
Single-member LLC operating agreements follow a simple format, so you’ll only need to enter your business information and your first and last name (as LLC owner).
For LLCs with multiple owners, there are a few more steps involved when creating an operating agreement. In addition to your basic business information, you’ll need to decide:
- The ownership structure of your LLC
- How your LLC will be managed
- How profit will be distributed