Online LLC Operating Agreement: Decisions, Clauses, Examples

Written and reviewed by the iRunDocs Editorial Team. Last updated: October 2, 2026.

This article is general educational information about limited liability company operating agreements in the United States. It is not legal or tax advice, and iRunDocs is not a law firm. LLC law varies by state and tax consequences depend on your facts, so consult a licensed attorney and a tax professional before signing an agreement that governs real money or ownership.

An LLC operating agreement is the private contract among an LLC's owners, called members, that sets out how the company is owned, managed, financed, and eventually wound down. The state filing that creates the LLC, usually called articles of organization or a certificate of formation, is a short public document. The operating agreement is where the real rules live: who owns what percentage, who makes decisions, how profits are paid out, what happens when someone wants to leave, and what happens if a member dies or the owners stop agreeing.

Many people search for an online LLC operating agreement because they formed their company quickly and now a bank, a partner, or a lender is asking for one. This guide explains what to decide before you draft, walks through each section with sample clauses, covers the rules that differ by state and by number of members, and includes a worked example and the mistakes that cause the most trouble later. When you are ready to draft your own, you can create an LLC operating agreement with the iRunDocs generator and review the full preview before you pay.

In this guide

• Why an operating agreement matters even when your state does not require one
• Decisions to make before you draft
• The sections of an operating agreement, with sample clauses
• How the number of members and tax status change the agreement
• Step by step: putting your operating agreement together
• Worked example: two founders with unequal contributions
• Common operating agreement mistakes
• When to bring in an attorney or tax professional
• Frequently asked questions
• Official sources worth checking
• Putting it together

Why an operating agreement matters even when your state does not require one

Every state has an LLC statute with default rules that apply when the members have not agreed otherwise. Many of those statutes are based on the Uniform Limited Liability Company Act, while others, such as Delaware's, are built around giving members broad freedom to write their own terms. Either way, the defaults were written for no one in particular. They may split profits equally regardless of who contributed money, require unanimous consent for decisions you would prefer a majority to make, or leave a departing member's rights unclear.

An operating agreement replaces those generic defaults with rules that fit your company. It also serves several practical purposes:

• It supports your liability shield. One of the factors courts look at when deciding whether to disregard an LLC and hold owners personally liable is whether the company was operated as a separate entity. A written agreement, followed in practice, helps show that it was.
• Banks and lenders ask for it. Many banks request an operating agreement to open a business account or to confirm who may sign for the company.
• It prevents disputes among owners. Most LLC disputes start over money, control, or exit. An agreement that answers those questions in advance is far cheaper than litigation.
• It sets up tax treatment. For multi-member LLCs taxed as partnerships, the agreement governs capital accounts and allocations, which your tax preparer needs.
• It plans for the unexpected. Death, disability, divorce, or a member simply losing interest are much easier to handle when the agreement already says what happens.

States that expressly require an agreement

A small number of states require LLCs to adopt an operating agreement. New York, for example, requires the members to adopt a written operating agreement within 90 days after the articles of organization are filed, under section 417 of its Limited Liability Company Law. Several other states refer to an operating agreement in their statutes without imposing a filing requirement. In nearly every state, the operating agreement is kept with the company's records rather than filed with the state. Check your own state's LLC statute or the secretary of state's guidance for current rules.

Single-member LLCs need one too

Owners of single-member LLCs often assume an agreement is pointless because there is no one to disagree with. In practice, a single-member agreement documents that the company is separate from its owner, names who can act if the owner becomes incapacitated or dies, and gives banks the authority documentation they want. Our article on why a single-member LLC operating agreement still matters goes deeper on that situation.

Decisions to make before you draft

A generator or template can only record decisions you have made. Before you open one, sit down with your co-owners and answer these questions in writing. Disagreements that surface now are cheap; the same disagreements after a profitable year or a falling-out are not.

Who are the members, and what does each contribute?

List every member by full legal name. If a member is itself a company or a trust, use its exact legal name and identify who signs for it. For each member, write down the initial contribution: cash, property, equipment, intellectual property, or services. Agree on a dollar value for anything other than cash. Contributions of future services are a common source of confusion, so be explicit about whether a member is receiving ownership for work they have not yet done and what happens if they stop doing it.

How will ownership be measured?

Most small LLCs express ownership as percentage interests or as units. Percentages are simple; units make later changes, such as adding a new member, easier to calculate. Decide whether ownership will track capital contributed, or whether some members will receive more or less than their capital would suggest.

Member-managed or manager-managed?

In a member-managed LLC, the members run the business directly and each member typically has authority to act for the company in the ordinary course. In a manager-managed LLC, the members appoint one or more managers (who may or may not be members) to run day-to-day operations, and the other members act more like passive investors. Your articles of organization may already state which structure you chose, and the operating agreement should match.

Which decisions need more than a simple majority?

Ordinary business decisions usually require a majority vote. Major decisions, such as selling the business, admitting a new member, taking on significant debt, amending the agreement, or dissolving, often require a supermajority or unanimous consent. List the major decisions specifically rather than relying on a vague phrase like "fundamental matters."

How will money come out of the company?

Decide how and when profits are distributed, whether the company will make tax distributions so members can pay tax on allocated income, and whether any member will receive guaranteed payments or salary for work.

What happens when someone wants out, or must leave?

Agree on transfer restrictions, triggering events for a buyout, how a departing member's interest will be valued, and how the purchase price will be paid. This is the section owners most often skip and most often regret skipping.

How will deadlocks be broken?

In a two-member LLC with equal ownership, every disputed decision is a potential deadlock. Pick a mechanism now: a tie-breaking vote, a neutral advisor, mediation, or a buy-sell procedure.

Key operating agreement decisions and common options

Decision	Common options	Trade-off to weigh
Management	Member-managed or manager-managed	Who can sign for the company and how involved passive owners are
Ordinary decisions	Majority by percentage interest	Speed versus protection for minority owners
Major decisions	Supermajority or unanimous consent for a listed set	Stronger protection, but more chances of deadlock
Distributions	Discretionary plus tax distributions	Keeping cash in the business versus members' tax bills
Transfers	Consent required plus right of first refusal	Control over co-owners versus a member's ability to exit
Buyout valuation	Agreed value, formula, or appraisal	Simplicity versus accuracy and cost
Deadlock	Mediation, tie-breaker, or buy-sell offer	Fairness when members have unequal cash resources

The sections of an operating agreement, with sample clauses

The sample wording below shows common drafting choices for a small multi-member LLC. It is illustrative, not a complete agreement, and every clause should be adapted to your facts and state law. Replace everything in brackets.

Formation, name, and purpose

This section identifies the company and confirms it was formed under a particular state's law. A broad purpose clause is typical and avoids accidentally limiting the business.

The Members formed [Company Name] LLC (the "Company") as a limited liability company under the [State] Limited Liability Company Act by filing its [articles of organization / certificate of formation] on [date]. The Company may engage in any lawful business for which limited liability companies may be organized under that Act. The Company's principal office is [address], and its registered agent is [name and address].

Members, contributions, and ownership

Record each member's contribution and resulting ownership in a schedule that can be updated. State plainly that no member must contribute more unless the members agree.

The name, initial Capital Contribution, agreed value of any non-cash contribution, and Percentage Interest of each Member are set out in Schedule A, which the Members shall update upon any change. No Member is required to make any additional Capital Contribution unless approved by [Members holding a majority of Percentage Interests / all Members]. No Member shall receive interest on any Capital Contribution.

If you want a process for raising more money later, add a capital call clause that says how much notice members get and what happens if a member does not contribute, such as dilution of that member's percentage. Dilution formulas can produce surprising results, so test the math with an example before you sign.

Capital accounts and allocations

For LLCs taxed as partnerships, capital accounts track each member's economic stake, and allocations determine how profits and losses are reported for tax purposes. Partnership tax rules under section 704(b) of the Internal Revenue Code and its regulations govern whether allocations are respected, which is why many agreements include standard tax language drafted by an accountant or attorney.

A separate Capital Account shall be maintained for each Member in accordance with Treasury Regulations section 1.704-1(b)(2)(iv). Except as otherwise required by law, the Company's net profits and net losses for each fiscal year shall be allocated among the Members in proportion to their Percentage Interests.

Allocating profits in a way that does not match ownership, sometimes called special allocations, is possible but technical. Get tax advice before you use them.

Distributions

Distributions are actual payments of cash or property to members. Allocations are tax reporting; distributions are money. Members can owe tax on allocated income even if nothing is distributed, so many agreements include a tax distribution clause.

Distributions of available cash shall be made at such times and in such amounts as [the Manager / Members holding a majority of Percentage Interests] determine, in proportion to Percentage Interests. To the extent cash is available, the Company shall distribute to each Member, at least [quarterly], an amount intended to cover the Member's estimated income tax on taxable income allocated to that Member, which shall be treated as an advance against other distributions. No distribution shall be made if it would render the Company unable to pay its debts as they become due.

The last sentence reflects a limitation found in many state LLC statutes, which restrict distributions that would leave the company insolvent and can make members return improper distributions.

Management and authority

Spell out who manages the company, what they may do alone, and what requires member approval. Banks and counterparties often read this section to confirm who may sign.

The Company shall be [member-managed / managed by one or more Managers]. [Each Member / The Manager] has authority to bind the Company in the ordinary course of its business. Without the approval of [all Members / Members holding at least two-thirds of Percentage Interests], the Company shall not: (a) sell all or substantially all of its assets; (b) merge or convert into another entity; (c) admit a new Member; (d) borrow or guarantee more than [$ amount] in a single transaction; (e) amend this Agreement or the articles of organization; or (f) dissolve.

Meetings, voting, and written consent

Small LLCs rarely hold formal meetings. Allowing action by written consent, including email or electronic signature, keeps decisions documented without ceremony.

Members may act at a meeting or without a meeting by written consent, including consent given electronically, signed by Members holding at least the Percentage Interests that would be required to take the action at a meeting. Each Member's vote is weighted by its Percentage Interest.

Duties of members and managers

State LLC laws impose duties of loyalty and care on those who manage the company, and they differ in how much the operating agreement may change those duties. Delaware, for example, allows an LLC agreement to restrict or eliminate fiduciary duties, though not the implied contractual covenant of good faith and fair dealing; many other states allow modification only within limits. A common middle ground is to confirm the duties and permit specific outside activities.

Each Member and Manager shall act in good faith and in a manner reasonably believed to be in the best interests of the Company. A Member may engage in other business activities, including activities that compete with the Company only if approved in writing by [the other Members], and shall not use Company opportunities or confidential information for personal benefit.

Transfers of membership interests

Without restrictions, a member could sell or pledge an interest to someone the others never chose to work with. Most agreements prohibit transfers without consent and give the remaining members a right of first refusal.

No Member shall transfer, sell, assign, pledge, or otherwise dispose of all or any part of its interest without the prior written consent of [all other Members]. Before any permitted transfer to a third party, the transferring Member shall first offer the interest to the Company and then to the other Members on the same terms, and they shall have [30] days to accept. Any transfer in violation of this section is void. A transferee who is not admitted as a Member holds only the right to receive distributions and has no voting or management rights.

Buy-sell provisions

A buy-sell section says what happens when a triggering event occurs. Typical triggers are death, long-term disability, bankruptcy, divorce in which a spouse would receive the interest, a member's voluntary withdrawal, and termination of a member's work for cause. For each, decide whether the company or the other members must buy, may buy, or the departing member may force a sale.

Upon a Triggering Event affecting a Member, the Company, and then the other Members, shall have the option to purchase all of that Member's interest for the Purchase Price within [90] days after receiving notice of the event. The Purchase Price shall be [the value most recently agreed by all Members in a signed certificate, if dated within the prior 12 months; otherwise fair market value determined by an independent appraiser selected by the Company]. The Purchase Price may be paid [20 percent at closing and the balance in equal monthly installments over 36 months with interest at the applicable federal rate], secured by the purchased interest.

Valuation choices each have trade-offs. An agreed value updated annually is simple but often forgotten. A formula, such as a multiple of trailing earnings, is predictable but can become unfair as the business changes. An appraisal is accurate but costs money and time. Installment terms matter as much as the price, because few small companies can pay a departing member in cash at once. Life insurance is commonly used to fund buyouts on death.

Admission of new members

State how new members are admitted, whether they must sign a joinder agreement, and how existing ownership is adjusted.

A person may be admitted as a new Member only with the approval required by the management section and upon signing a joinder agreeing to be bound by this Agreement. Schedule A shall be updated to reflect the new Member's Capital Contribution and the resulting Percentage Interests of all Members.

Deadlock

Equal owners need a way forward when they disagree on something that matters. Escalation clauses that start with discussion and mediation are a sensible first step; some agreements also include a "shotgun" buy-sell, in which one member names a price and the other must either buy at that price or sell at it.

If the Members are unable to agree on a matter requiring their approval after good-faith discussion for [30] days, either Member may require non-binding mediation with a mediator mutually selected. If the matter remains unresolved [60] days after mediation begins, either Member may deliver a written offer stating a price per Percentage Interest, and the other Member shall, within [45] days, elect either to sell its entire interest to the offering Member or to buy the offering Member's entire interest, in each case at that price.

Shotgun clauses can favor the member with more cash, so think carefully before using one where members have unequal resources.

Books, records, and tax matters

Members generally have statutory rights to inspect records, but the agreement should say where records are kept, what fiscal year the company uses, and who handles tax filings. For LLCs taxed as partnerships, federal audit rules require the company to designate a partnership representative.

The Company shall maintain complete books and records at its principal office and shall provide each Member with the information needed to prepare its tax returns within [75] days after the end of each fiscal year. The Company's fiscal year is the calendar year. [Name] is designated as the partnership representative for federal tax purposes and shall keep the Members reasonably informed of any tax audit or proceeding.

Indemnification and limitation of liability

The agreement can provide that the company will cover members and managers for losses incurred acting on its behalf in good faith, subject to the limits of state law.

The Company shall indemnify each Member and Manager against losses, claims, and expenses arising from acts performed in good faith on behalf of the Company and within the scope of authority granted by this Agreement, except to the extent caused by fraud, gross negligence, willful misconduct, or a knowing violation of law.

Dissolution and winding up

List the events that dissolve the company and the order in which assets are distributed on winding up. State statutes typically require paying creditors first.

The Company shall dissolve upon (a) the written consent of [all Members]; (b) the sale of all or substantially all of its assets; or (c) entry of a decree of judicial dissolution. Upon dissolution, the Company's affairs shall be wound up, its assets applied first to creditors, including Members who are creditors, and then distributed to the Members in accordance with their positive Capital Account balances.

General provisions and signatures

Close with governing law, how the agreement can be amended, that it is the entire agreement, and how notices are given. Every member signs. In community property states, some agreements include a spousal consent so that a member's spouse acknowledges the transfer restrictions, which can matter in a divorce.

How the number of members and tax status change the agreement

Single-member LLCs

A single-member agreement is shorter. It still states that the company is separate from its owner, describes how the owner contributes and withdraws money, and names a successor or "special member" who can act if the owner dies or becomes incapacitated. Without that last provision, a company whose only member has died may have no one with clear authority to pay bills or sign checks until an estate is opened. Coordinate it with the owner's estate plan.

Multi-member LLCs

With two or more members, the agreement carries more weight: voting, deadlock, buy-sell, capital calls, and fiduciary duties all become live issues. Equal two-member companies need a deadlock mechanism more than any other structure.

Default and elective tax classification

By default for federal income tax purposes, a single-member LLC is disregarded (its income is reported on the owner's return), and a multi-member LLC is taxed as a partnership. An LLC can instead elect to be taxed as a corporation by filing IRS Form 8832, or as an S corporation by filing Form 2553 if it meets the eligibility rules. The election changes what the operating agreement needs:

• Partnership taxation: capital accounts, allocation provisions, tax distributions, and a partnership representative are central.
• S corporation election: S corporations can have only one class of stock for tax purposes, which means distributions generally must be proportional to ownership. Special allocations and preferred returns that are common in partnership-style agreements can jeopardize the election, so the agreement is usually simplified.
• Disregarded entity: allocation provisions are largely unnecessary, but separateness and succession provisions still matter.

Talk to a tax professional before choosing or changing a classification; the agreement should be drafted to match the choice.

State differences worth checking

States differ on whether an operating agreement may be oral, how far fiduciary duties can be modified, what information members can demand, which default voting rules apply, and how a member can withdraw. Some states also impose annual reports or franchise taxes that the agreement may assign to a manager to handle. Before relying on any default, read your state's LLC act or the secretary of state's guidance.

Beneficial ownership reporting

Many owners formed LLCs during the period when the federal Corporate Transparency Act required beneficial ownership reports. In 2025, FinCEN issued a rule removing that reporting requirement for companies formed in the United States, leaving it in place for certain foreign companies registered to do business here. Rules in this area have changed several times, so confirm the current position on FinCEN's website rather than relying on older guidance.

Step by step: putting your operating agreement together

1. 1Confirm your formation details. Pull your filed articles of organization and note the exact company name, formation date, state, registered agent, and whether you elected member or manager management.
2. 2Agree on the business terms with every member. Use the decision list above and write the answers down before drafting.
3. 3Prepare Schedule A. List each member's name, address, contribution, agreed value of non-cash contributions, and percentage or units.
4. 4Choose your management and voting rules, including the specific major decisions that need supermajority or unanimous approval.
5. 5Set distribution and tax provisions that match your tax classification, ideally after a short conversation with your accountant.
6. 6Write the exit rules: transfer restrictions, triggering events, valuation method, and payment terms.
7. 7Add a deadlock mechanism if any group of members can block decisions.
8. 8Draft the agreement. The iRunDocs LLC operating agreement generator walks through these sections in order and shows a live preview, so you can see exactly what each choice produces.
9. 9Have every member review it, and consider having an attorney review anything unusual, such as special allocations, service-based ownership, or a shotgun clause.
10. 10Sign and store it. All members sign, electronically or on paper. Keep the signed copy with the company records, give each member a copy, and update Schedule A whenever ownership changes.
11. 11Follow it. An agreement the members ignore can do more harm than good. Record major decisions in written consents, keep company money separate, and revisit the agreement when the business changes.

Worked example: two founders with unequal contributions

Here is a simplified illustration with fictional people.

The facts. Alex and Jordan form Cedar Path Studio LLC, a video production company. Alex contributes $40,000 in cash. Jordan contributes camera and editing equipment the two agree is worth $10,000 and will work full time in the business, while Alex will keep a day job and help with sales. They want to split ownership 50/50 because Jordan's work is central to the company.

Ownership and contributions. Schedule A shows Alex's $40,000 cash and Jordan's $10,000 equipment. To reflect the agreed 50/50 split despite unequal capital, they agree that Jordan's additional ownership is earned for services and vests over three years. If Jordan leaves in the first three years, the unvested portion is forfeited. Because receiving an ownership interest for services can have tax consequences, they ask their accountant how to structure it, and the accountant recommends a profits-interest approach and capital accounts that reflect the actual contributions.

Management. The company is member-managed. Either member can sign contracts up to $5,000. Anything larger, any loan, any new member, and any amendment requires both signatures.

Distributions. Each quarter, the company distributes enough cash to cover each member's estimated tax on allocated income, if cash is available. Other distributions require both members' approval. Jordan also receives a guaranteed payment for full-time work, which the agreement states separately from profit distributions.

Exit and deadlock. Transfers require the other member's consent and a right of first refusal. On death or long-term disability, the company has the option to buy the interest at an annually agreed value, funded partly by life insurance on each member. If the two deadlock on a major decision, they go to mediation; if that fails, either may trigger a buy-sell offer at a stated price.

What the example shows. The 50/50 split looked simple, but the unequal contributions, the service-based ownership, and the different roles each needed specific language. Writing those terms down at formation, while the founders were on good terms, made each issue a one-paragraph decision instead of a future dispute.

Common operating agreement mistakes

• Downloading a template and never customizing it. Generic terms can contradict your real arrangement, such as equal profit splits when contributions were unequal.
• Names that do not match the state filing. The company name, formation date, and management structure in the agreement should match the articles of organization exactly.
• No schedule of contributions. Without a record of who put in what, capital accounts and buyout calculations become guesswork.
• Treating allocations and distributions as the same thing. Members can owe tax on income they never received if there is no tax distribution clause.
• Vague major-decision lists. "Important decisions require unanimous consent" invites arguments about what counts as important.
• No exit plan. Missing transfer restrictions and buy-sell terms are the most expensive omission when a member dies, divorces, or quits.
• A valuation method no one updates. An "agreed value" from five years ago may bear no relationship to today's business.
• No deadlock mechanism for equal owners. Two 50 percent members without a tie-breaker can paralyze the company.
• Ignoring tax classification. Partnership-style allocation language can conflict with an S corporation election.
• Not signing, or not following it. An unsigned agreement, or one the members ignore in practice, weakens both the internal rules and the argument that the LLC is a separate entity.

When to bring in an attorney or tax professional

A generator-built agreement is a good fit for straightforward single-member companies and small multi-member companies with proportional ownership and simple management. Get professional help if members contribute services for ownership, if ownership and profit splits differ, if you plan special allocations or preferred returns, if outside investors are joining, if the company holds significant real estate or intellectual property, if members live in different states or countries, or if you are converting from another entity type. A tax professional should review any agreement for a company that has elected S corporation status.

Frequently asked questions

Is an LLC operating agreement legally required?

Not in most states, but a few require one. New York, for example, requires members to adopt a written operating agreement within 90 days after filing. Even where it is optional, most LLCs benefit from having one.

Do I file my operating agreement with the state?

Generally no. The operating agreement is an internal document kept with the company's records. The state receives the articles of organization or certificate of formation instead.

Does a single-member LLC need an operating agreement?

It is usually not required, but it is strongly recommended. It documents that the company is separate from its owner, names a successor if the owner dies or is incapacitated, and satisfies banks that ask for it.

Can I change the operating agreement later?

Yes. The agreement should state how amendments are approved; many require unanimous consent for amendments. Put every amendment in writing and have the required members sign it.

What is the difference between member-managed and manager-managed?

In a member-managed LLC, the owners run the business. In a manager-managed LLC, one or more managers run it, and the other members are typically passive. The choice affects who can sign for the company.

Can members split profits differently from ownership percentages?

For LLCs taxed as partnerships, it is possible but technical, because tax rules determine whether such allocations are respected. LLCs that elected S corporation status generally must distribute in proportion to ownership. Get tax advice before using unequal splits.

What happens if a member dies?

That depends on the agreement. Without buy-sell terms, the member's estate may receive the economic rights to the interest without management rights, which can leave both the family and the remaining members in an awkward position. A buy-sell clause and a successor provision address this.

Can an operating agreement be signed electronically?

Generally yes. Electronic signatures are broadly valid for business contracts under the federal ESIGN Act and state laws based on the Uniform Electronic Transactions Act.

Does an operating agreement protect my personal assets?

It helps, but it is not a guarantee. Limited liability comes from the state statute and from operating the LLC as a separate entity. Keep finances separate, sign contracts in the company's name, keep the company adequately funded, and follow the agreement.

Official sources worth checking

For current rules, read your state's limited liability company act and the secretary of state's LLC guidance, the IRS guidance on LLC tax classification and Forms 8832 and 2553, IRS material on the partnership audit regime and the partnership representative, and FinCEN's beneficial ownership information pages. Statutes and agency rules change, so rely on the current versions rather than any summary, including this one.

Putting it together

A strong operating agreement is less about legal language and more about decisions made in advance: who owns what, who decides, how money comes out, and what happens when someone leaves. Make those decisions with your co-owners, record them clause by clause, sign the agreement, and then follow it. When you are ready, create your LLC operating agreement on iRunDocs and preview it free before you download. For a shorter summary of state requirements, see our LLC operating agreement requirements guide.

Not legal advice: this article provides general information about LLC operating agreements and does not create an attorney-client relationship. Laws and tax rules change and your facts matter, so consult a licensed attorney and a tax professional about your company.