LLC Operating Agreement Requirements

Six states legally require an operating agreement: California, Delaware, Maine, Missouri, Nebraska, and New York. Everywhere else, banks, investors, and courts expect one.

For single-member LLCs, the operating agreement is the strongest evidence that your personal assets are separate from the company — the core purpose of forming the LLC in the first place. Without one, creditors have an easier time piercing the veil.

• LLC name, principal office, and registered agent
• Purpose and term (usually perpetual)
• Members, contributions (cash, property, services valued), and ownership percentages
• Capital account mechanics and future contribution rules
• Distributions and draws: pro-rata vs. disproportionate
• Management structure: member-managed vs. manager-managed
• Voting thresholds for ordinary and major decisions
• Officer titles and authority limits
• Tax classification (disregarded, partnership, S-corp, C-corp)
• Books and records, fiscal year, accounting method
• Transfer of interests and buy-sell provisions
• Dissociation and withdrawal
• Dissolution and winding up
• Indemnification of members and managers
• Dispute resolution and governing law

In a member-managed LLC, all members participate in day-to-day decisions. Best for small LLCs where every owner is active.

In a manager-managed LLC, one or more appointed managers run the business and most members are passive investors. Use when you have silent partners, outside capital, or a large group.

Buy-sell clauses govern what happens when a member dies, divorces, goes bankrupt, quits, or wants to sell. The four patterns:

• Right of first refusal — selling member must offer interest to other members first at the same price as the third-party offer.
• Cross-purchase — other members buy the interest directly.
• Redemption — the LLC itself buys back the interest.
• Hybrid — LLC has right first; if it declines, members have a right; then outside sale is allowed.

Pair these with a valuation method (book value, certified appraisal, formula, prior-year revenue multiple) agreed up front — valuation disputes are where LLC fights become expensive.

By default: single-member LLC = disregarded entity (Schedule C), multi-member = partnership (Form 1065). Many LLCs save self-employment tax by electing S-corp treatment (Form 2553) once net income exceeds ~$60k. The operating agreement should allow the election and set out how basis adjustments and distributions interact with payroll.