Illinois LLC Operating Agreement

We offer operating agreement templates for single-member LLCs and multi-member LLCs (including member-managed and manager-managed) as well as a customizable operating agreement tool.

An operating agreement is a legal document that outlines the ownership structure and operating procedures of an LLC.

Whether you are starting a single-member or multi-member LLC, your operating agreement should address all of the topics below. Some of these stipulations will not have much bearing on the actual operations of a single-member LLC, but are still important to include for the sake of legal formality.

1. Organization: When the LLC was officially formed, who its members are, and how ownership is divided. Multi-member LLCs may utilize an equal ownership structure or assign various members different “units” of ownership.
2. Management & Voting: Whether the LLC will be managed by its members or by an appointed manager, and how members will go about voting on business matters. Typically, each member has one vote, but you may wish to give some members more voting power than others. For more information on managing your LLC, read our Member-Managed vs Manager-Managed guide.
3. Capital Contributions: The amount of money each member has invested in the business. This is also where you should establish an approach to raising additional funds in the future.
4. Distributions: How profits and losses will be divided among the members. The most common option is to distribute profits evenly. If you want them divided a different way, this should be detailed in your operating agreement. For more information on the basics of LLC ownership, read our Contributions and Distributions guide.
5. Changes to Membership Structure: How roles and ownership will be transferred in the event that a member leaves the company. It’s essential to lay out the process for buying out and/or replacing a member in the LLC’s governing document.
6. Dissolution: Dissolution: If at some point all the members of your LLC decide you no longer wish to conduct business, you should officially dissolve it. Outlining the hypothetical process of dissolving your business is an important aspect of your operating agreement. To learn how to dissolve your Illinois LLC, read our Illinois LLC Dissolution article.

We reviewed the top LLC services. Find which service is right for you.

No matter what type of Illinois LLC you're starting, you'll want to create an operating agreement. Here's why:

1. It’s recommended by the state. According to Illinois Compiled Statutes, Limited Liability Company Act 805 ILCS 180/15.5, every Illinois LLC may adopt an operating agreement to govern the company’s operating procedures.

2. It'll prevent conflict among your business partners. If you're starting a multi-member LLC, having an operating agreement will prevent misunderstandings amongst your team by setting clear expectations about each partner's role and responsibilities.
3. It helps preserve your limited liability status. If you're the sole owner of a single-member LLC in Illinois, having an operating agreement will help to ensure your limited liability status is upheld by court officials, and add to your business's credibility as a whole.

The full text of the statute can be found below:

(a) All members of a limited liability company may enter into an operating agreement to regulate the affairs of the company and the conduct of its business and to govern relations among the members, managers, and company. The operating agreement may establish that a limited liability company is a manager-managed limited liability company and the rights and duties under this Act of a person in the capacity of a manager. To the extent the operating agreement does not otherwise provide, this Act governs relations among the members, managers, and company. Except as provided in subsections (b), (c), (d), and (e) of this Section, an operating agreement may modify any provision or provisions of this Act governing relations among the members, managers, and company.
(b) The operating agreement may not:

(1) unreasonably restrict a right to information or access to records under Section 1-40 or Section 10-15;
(2) vary the right to expel a member in an event specified in subdivision (6) of Section 35-45;
(3) vary the requirement to wind up the limited liability company's business in a case specified in subdivision (4), (5), or (6) of subsection (a) of Section 35-1;
(4) restrict rights of a person, other than a manager, member, and transferee of a member's distributional interest, under this Act;
(5) restrict the power of a member to dissociate under Section 35-50, although an operating agreement may determine whether a dissociation is wrongful under Section 35-50;
(6) (blank);
(6.5) eliminate or reduce the obligations or purposes a low-profit limited liability company undertakes when organized under Section 1-26;
(7) eliminate or reduce the implied contractual covenant of good faith and fair dealing under subsection (d) of Section 15-3, but the operating agreement may determine the standards by which the performance of the member's or manager's duties or the exercise of the member's or manager's rights is to be measured;
(8) eliminate, vary, or restrict the priority of a statement of authority over provisions in the articles of organization as provided in subsection (h) of Section 13-15;
(9) vary the law applicable under Section 1-65;
(10) vary the power of the court under Section 5-50; or
(11) restrict the right to approve a merger, conversion, or domestication under Article 37 or the Entity Omnibus Act of a member that will have personal liability with respect to a surviving, converted, or domesticated organization.

(c) In addition, with respect to fiduciary duties, the operating agreement:

(1) may not restrict or eliminate a fiduciary duty owed at common law or under this Act, unless the restriction or elimination in the operating agreement is clear and unambiguous;
(2) may not restrict or eliminate the fiduciary duty described in paragraph (2) of subsection (b) of Section 15-3, except in the manner described in paragraph (4) of this subsection (c);
(3) may not alter the duty of care to authorize intentional misconduct or knowing violation of law; and 
(4) may identify, subject to paragraph (1), specific types or categories of activities or provide one or more examples of activities that do not violate any fiduciary duty described in subsection (b) of Section 15-3 or any fiduciary duty owed at common law prand may determine standards by which the performance of the fiduciary duty is to be measured. The changes made to paragraphs (2) and (4) of this subsection by this amendatory Act of the 102nd General Assembly apply to: (i) any operating agreement entered into before the effective date of this amendatory Act of the 102nd General Assembly if the fiduciary duties of the members or managers of the company described in paragraph (2) of subsection (b) of Section 15-3 are modified in any respect on or after the effective date of this amendatory Act of the 102nd General Assembly; and (ii) any operating agreement entered into on or after the effective date of this amendatory Act of the 102nd General Assembly.

(d) The operating agreement may specify the method by which a specific act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified by all the members or by one or more disinterested and independent members or persons after full disclosure of all material facts.
(e) The operating agreement may alter or eliminate the right to payment or reimbursement for a member or manager provided by Section 15-7 and may eliminate or limit a member or manager's liability to the limited liability company and members for money damages, except for: 

(1) subject to subsections (c) and (d) of this Section, breach of the duties as required in subdivisions (1), (2), and (3) of subsection (b) of Section 15-3 and subsection (g) of Section 15-3; 
(2) a financial benefit received by the member or manager to which the member or manager is not entitled;
(3) a breach of a duty under Section 25-35;
(4) intentional infliction of harm on the company or a member; or
(5) an intentional violation of criminal law.

(f) A limited liability company is bound by and may enforce the operating agreement, whether or not the company has itself manifested assent to the operating agreement.
(g) A person that becomes a member of a limited liability company is deemed to assent to the operating agreement.
(h) An operating agreement may be entered into before, after, or at the time of filing of articles of organization and, whether entered into before, after, or at the time of the filing, may be made effective as of the time of formation of the limited liability company or as of the time or date ovided in the operating agreement.

Once you have finished your operating agreement, you do not need to file it with your state. Keep it for your records and give copies to the members of your LLC.

Following any major company event, such as adding or losing a member, it is a good idea to review and consider updating the operating agreement. Depending on how your operating agreement is written, it may require some or all of the members to approve an amendment to the document.