Operating Agreements Explained

An operating agreement is the internal contract that governs how an LLC actually runs — who owns what, who decides what, and what happens when things change. It is not filed with the state; it lives in your records. That's why it never appears as a line item on our state cost pages: the state charges nothing for it, because the state never sees it.

What it typically covers

Ownership. Each member's percentage and what they contributed — cash, property, services — to get it.
Management. Member-managed (all owners act for the company, the default in most states) versus manager-managed (designated managers act; useful with passive investors).
Money. How profits and losses are allocated, when distributions happen, and whether members can be required to contribute more capital.
Change events. What happens when a member wants out, dies, divorces, or goes bankrupt — buyout rights, valuation methods, and transfer restrictions. This section is boilerplate right up until it's the most important document in your business.
Dissolution. How the company winds down and who gets what.

Which states require one

A handful of states — New York, Missouri, and Maine among them — statutorily require LLCs to adopt an operating agreement (New York's LLC Law § 417 says within 90 days of formation, and it may be written or, in some states, even oral). Notably, there's no filing, no fee, and no state enforcement mechanism checking; the requirement matters mostly because noncompliance looks bad precisely when you're in a dispute. Every other state permits but doesn't require one. Without an agreement, your state's default LLC statute governs — one-size-fits-none rules like equal profit splits regardless of contribution in some states.

Why single-member LLCs should bother

The common objection: "It's just me — who am I contracting with?" Three practical answers:

Liability protection. The core promise of an LLC is separation between you and the business. When a creditor argues the LLC is a sham ("alter ego"), courts look at whether you treated it as a real, separate entity. A signed operating agreement is cheap, persuasive evidence that you did — see LLC vs. sole proprietorship for why that separation is the whole point.
Banks and lenders ask for it. Many banks want to see an operating agreement before opening a business account or extending credit.
Succession. A single-member agreement can name who takes over the membership interest if you die — otherwise state default rules and probate decide.

When to update it

Treat the agreement as a living document with a short list of triggers: a new member joins or one leaves, ownership percentages shift, the company switches between member- and manager-management, a major capital contribution comes in, or the members elect S corporation taxation (which layers stock-like restrictions onto transfers). Amendments usually just need the consent threshold the agreement itself sets — commonly unanimous or two-thirds — and a signed, dated amendment kept with the original. An agreement that no longer matches reality can be worse than none in a dispute, because it hands the other side a document to hold you to.

Cost and where people get them

A self-drafted agreement from a reputable template costs $0; formation services bundle basic ones free or for $50–$100; an attorney-drafted agreement for a multi-member LLC commonly runs $500–$2,000 and is generally money well spent once real dollars or unequal contributions are involved. The multi-member case is genuinely not a template problem: allocation, vesting, and exit provisions interact with tax law in ways worth professional review.

Keep it with your records, have every member sign it, and revisit it when ownership or management changes. Nothing here is legal advice — the right provisions depend on your members, money, and state.