What documents do I need to start an LLC?

To form an LLC, you need: (1) Articles of Organization (called a Certificate of Formation in some states), which is filed with your state's Secretary of State; (2) an LLC Operating Agreement , which governs how the company is managed internally; (3) an EIN from the IRS for tax filing and opening a bank account; and (4) a registered agent designation — a person or service authorized to receive legal documents on behalf of your LLC. While only the Articles of Organization are legally required to create the LLC, operating without an operating agreement leaves you subject to state default rules and weakens your liability protection.

What is an LLC operating agreement and do I need one?

An LLC operating agreement is an internal document that outlines how your LLC is managed and operated. It covers ownership percentages, profit and loss allocation, voting rights, management structure (member-managed vs. manager-managed), capital contributions, transfer restrictions, and dissolution procedures. While not all states legally require an operating agreement, having one is critical because it: (1) protects your limited liability status by demonstrating the LLC is a separate entity; (2) prevents state default rules from governing your business; and (3) resolves disputes by providing a clear framework agreed upon by all members.

How much does it cost to form a business?

State filing fees for an LLC range from $50 to $500 depending on the state — for example, Kentucky charges $40, while California charges $70 plus an $800 annual franchise tax. If you hire a lawyer for formation, expect to pay $500 to $2,000 on top of filing fees. Additional costs may include registered agent services ($50-$300/year), an EIN application (free from the IRS), and business licenses ($50-$400 depending on location and industry). Legal Tank's free templates eliminate attorney fees, saving you $500 to $2,000 on formation documents alone.

What is the difference between an LLC and a corporation?

An LLC (Limited Liability Company) offers flexible management, pass-through taxation by default, and fewer formalities. A corporation has a more rigid structure with a board of directors, officers, and shareholders, and is subject to double taxation (corporate tax plus dividend tax) unless it elects S-corp status. LLCs are generally better for small businesses and startups due to their simplicity, while corporations are preferred for businesses that plan to raise venture capital, issue stock options, or go public. Both provide limited liability protection for their owners.

Do I need a registered agent for my business?

Yes, every LLC and corporation is required to designate a registered agent in the state where it is formed and in every state where it is registered to do business. The registered agent is a person or company authorized to receive official legal documents, tax notices, and government correspondence on behalf of your business. You can serve as your own registered agent in most states, but many business owners prefer to use a professional registered agent service ($50-$300/year) for privacy, reliability, and convenience — especially if they operate in multiple states.

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When Do You Need a LLC Operating Agreement?

You have just filed articles of organization to form a new limited liability company and need a written operating agreement to define ownership percentages, capital contributions, profit distributions, and management structure before the business begins operations.

A multi-member LLC needs a formal governance document to establish voting rights, decision-making procedures, dispute resolution mechanisms, and buy-sell provisions to prevent deadlocks and disagreements that could paralyze the business.

A single-member LLC owner needs an operating agreement to reinforce the legal separation between personal and business assets, which is essential for maintaining the liability protection that motivated forming the LLC in the first place.

New members are joining an existing LLC through capital investment or sweat equity, and the ownership structure needs to be documented clearly to define each member's rights, obligations, and share of profits and losses.

The LLC is entering into contracts, opening business bank accounts, or seeking financing, and banks, vendors, and lenders are requesting a copy of the operating agreement to verify the authority of the person signing on the company's behalf.

Members want to establish transfer restrictions, right-of-first-refusal provisions, and exit procedures to control who can become a member and prevent unwanted third parties from acquiring ownership interests in the company through a bill of sale or assignment.

What Should a LLC Operating Agreement Include?

Company Formation and Purpose

Identify the LLC by its legal name exactly as registered with the state, its principal place of business, the state of formation, the effective date, and the registered agent for service of process. State the company's purpose broadly (e.g., "to engage in any lawful business activity") to provide maximum operational flexibility, or narrowly if the members prefer to restrict the LLC's scope of operations.

Member Contributions and Ownership Percentages

Document each member's initial capital contribution (cash, property, or services), their resulting ownership percentage, and any future contribution obligations. Clearly defining ownership percentages at the outset prevents disputes about profit sharing, voting power, and distribution rights. Include provisions for additional capital calls if the business needs future funding and the consequences of a member's failure to contribute.

Profit and Loss Allocation

Specify how profits and losses are allocated among members. The default is pro rata based on ownership percentages, but members can agree to disproportionate allocations for legitimate business reasons (subject to IRS substantial economic effect rules). Define when and how distributions are made, whether distributions are mandatory or at the manager's discretion, and minimum distribution requirements to cover members' tax obligations on pass-through income.

Management Structure

Designate whether the LLC is member-managed (all members participate in day-to-day decisions) or manager-managed (one or more designated managers run operations while other members are passive investors). Define the scope of management authority, actions requiring member approval, and voting thresholds for major decisions such as taking on debt, selling assets, admitting new members, or dissolving the company.

Transfer Restrictions and Buy-Sell Provisions

Establish rules governing the transfer of membership interests, including right-of-first-refusal provisions giving existing members the option to purchase a departing member's interest before it can be sold to an outsider. Include buy-sell triggers (death, disability, retirement, bankruptcy, or voluntary withdrawal), valuation methods (book value, appraised value, or formula-based), and payment terms for buyouts. These provisions prevent unwanted third parties from becoming members.

Dissolution and Winding Up

Define the events that trigger dissolution (unanimous vote, judicial decree, bankruptcy, or specific triggering events) and the procedures for winding up the company's affairs, including liquidating assets, paying creditors, and distributing remaining assets to members in proportion to their capital accounts. Without clear dissolution provisions, members may face expensive litigation to resolve disagreements about ending the business.

Dispute Resolution

Include a multi-step dispute resolution process, typically beginning with informal negotiation, escalating to mediation, and ultimately to binding arbitration or litigation. Specify the venue, governing law, and whether the prevailing party is entitled to attorneys' fees. Effective dispute resolution provisions can save the LLC hundreds of thousands of dollars in litigation costs. Some operating agreements also incorporate deadlock-breaking mechanisms such as shotgun buy-sell clauses.

Signature Requirements

E-Signature Valid

LLC operating agreements are valid with electronic signatures in all 50 states.

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How to Fill Out a LLC Operating Agreement

Enter Company Information

Fill in the LLC's legal name as it appears on the articles of organization, the state of formation, the filing date, the principal business address, and the registered agent's name and address. This information must match the state filing exactly to avoid discrepancies that could cause problems with banks, lenders, or courts.

List All Members and Contributions

Enter each member's full legal name, address, initial capital contribution amount and type (cash, property description, or services valued at a specific amount), and resulting ownership percentage. The total of all ownership percentages must equal exactly one hundred percent. If any contributions are made over time rather than at formation, document the contribution schedule.

Define the Management Structure

Select member-managed or manager-managed governance. For manager-managed LLCs, identify the initial manager(s) by name, define their authority and compensation, and establish the process for appointing and removing managers. For member-managed LLCs, define voting thresholds (majority, supermajority, or unanimous) for different categories of decisions.

Set Distribution and Allocation Rules

Specify the profit and loss allocation method (usually pro rata by ownership percentage) and the distribution schedule (monthly, quarterly, annually, or at the manager's discretion). Address tax distributions that ensure members receive enough cash to cover their income tax obligations on pass-through profits, even if the company is retaining earnings for growth.

Complete Transfer and Exit Provisions

Fill in the transfer restriction details, including right-of-first-refusal terms, permitted transfers (to family trusts or other members), valuation methodology for buyouts, and payment terms (lump sum or installment payments over a defined period). Address what happens upon a member's death, disability, or bankruptcy by reference to the buy-sell provisions.

Execute the Agreement

All members must sign and date the operating agreement. While most states do not require notarization, having signatures notarized adds credibility when presenting the agreement to banks, lenders, and courts. Attach any exhibits referenced in the agreement, such as capital contribution schedules, property descriptions, or service valuation memoranda. Each member should retain an original signed copy.

LLC Operating Agreement Requirements by State

LLC Operating Agreement laws and requirements differ across states. Key variations include specific language requirements, notarization mandates, witness requirements, filing deadlines, and enforceability standards. Our templates incorporate state-specific provisions when you select your jurisdiction.

For the most comprehensive state-specific version, use our AI generator which automatically applies your state's legal requirements.

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Free Template vs Custom LLC Operating Agreement

Feature	Free Template	Custom (AI or Attorney)
Single-member LLC operating agreement
Multi-member with customizable ownership splitsMulti-member agreements require detailed governance provisions	-
Manager-managed governance provisions	-
Buy-sell and right-of-first-refusal clausesCritical for protecting member interests	-
Basic profit distribution provisions
Tax distribution and allocation provisions	-
Dispute resolution and deadlock provisions	-
State-specific compliance languageOperating agreement requirements vary by state	-

LLC Operating Agreement Template FAQ

What is an LLC operating agreement and is it required?

An LLC operating agreement is the foundational governance document that establishes the rules, structure, and procedures for operating a limited liability company. It defines member ownership percentages, capital contributions, profit and loss allocation, management authority, voting rights, transfer restrictions, dissolution procedures, and dispute resolution mechanisms. While only a handful of states legally require a written operating agreement (most notably New York, California, Missouri, Maine, and Delaware), having one is critically important regardless of your state's requirements. Without an operating agreement, your LLC is governed entirely by your state's default LLC statute, which may impose rules that do not align with your business intentions. For example, many states' default rules allocate profits equally among members regardless of ownership percentages, give all members equal management authority, and allow members to freely transfer their interests to outsiders. An operating agreement overrides these defaults with terms specifically tailored to your business. Additionally, banks, lenders, and sophisticated business partners will typically require a copy of your operating agreement before doing business with your LLC.

Do I need an operating agreement for a single-member LLC?

Yes, a single-member LLC should have an operating agreement even though there are no other members to establish rights between. The primary purpose of a single-member operating agreement is to reinforce the legal separation between you personally and your LLC, which is the entire reason for forming the entity. Courts can "pierce the corporate veil" and hold you personally liable for LLC debts if they determine that the LLC is merely your alter ego rather than a legitimate separate entity. Key factors courts examine include whether the LLC has its own operating agreement, whether the member maintains separate bank accounts, and whether the LLC observes basic formalities. A written operating agreement demonstrating that you treat the LLC as a separate legal entity is one of the strongest pieces of evidence in your favor if a creditor ever attempts to reach your personal assets. The agreement should document your capital contributions, establish that you are the sole member and manager, authorize you to act on the LLC's behalf, and set basic operational procedures.

Can the operating agreement be changed after formation?

Yes, an operating agreement can be amended at any time by following the amendment procedures specified in the agreement itself. Most well-drafted operating agreements include an amendment clause that defines the voting threshold required to modify the agreement, which is typically a majority or supermajority vote of the members by ownership percentage. Some provisions may require unanimous consent to change, such as modifications to ownership percentages, capital contribution obligations, or fundamental changes to the LLC's purpose. The amendment should be in writing, signed by all members who approved it, and attached to the original operating agreement as a formal addendum. Common reasons for amending an operating agreement include admitting new members, adjusting ownership percentages after additional capital contributions, changing the management structure from member-managed to manager-managed, updating distribution policies, revising transfer restrictions, or reflecting a change in the LLC's registered agent or principal place of business. Maintaining a clear record of all amendments is essential for documenting the LLC's governance history.

What happens if my LLC does not have an operating agreement?

If your LLC does not have a written operating agreement, the company is governed entirely by the default provisions of your state's LLC statute. These default rules often produce outcomes that members did not intend or expect. For example, many states' default rules allocate profits and losses equally among all members regardless of their capital contributions or ownership percentages, meaning a member who invested ninety percent of the capital receives the same share as a member who invested ten percent. Default rules typically give every member equal management authority and voting power, allow members to transfer their interests freely without consent from other members, and impose minimal requirements for dissolution. In a dispute between members, a court will apply the state's default rules to resolve the disagreement, which may produce a result that neither member wanted. The absence of an operating agreement also weakens the LLC's liability protection because courts view the lack of basic corporate formalities as evidence that the entity is not being treated as a genuine separate entity from its members.

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

In a member-managed LLC, all members have the authority to participate in the day-to-day management and decision-making of the business. Each member can bind the LLC to contracts, manage bank accounts, hire employees, and make operational decisions. This structure works well for small LLCs where all members are actively involved in running the business. In a manager-managed LLC, one or more designated managers (who may or may not be members) handle daily operations, while the remaining members function as passive investors with limited management authority. Managers have the power to bind the LLC in ordinary business transactions, while major decisions (such as taking on significant debt, selling substantial assets, or admitting new members) typically require member approval. Manager-managed structures are common in LLCs with passive investors, real estate investment LLCs, and situations where professional management is preferred. The operating agreement should clearly define which decisions fall within the manager's authority and which require member consent.

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