Glossary · Legal & Admin
What is Operating Agreement?
Definition
An operating agreement is a written document that sets out how an LLC is owned and managed, including each member's share, role, and decision-making rights.
Why it matters
Even single-member LLCs benefit from having one. It shows that the business is separate from you and helps back up your liability protection. Some states require it, while others do not.
For two partners opening a coffee cart, the agreement might say Maria owns 60 percent after contributing $12,000 and Dev owns 40 percent after contributing $8,000, profits are split by ownership, and any major purchase over $2,000 needs both signatures. It can also explain what happens if one partner wants out.
Without it, state default rules apply, which may not match what you wanted. Templates are available, but have an attorney review it, as requirements vary by state.
Common mistakes
- !Relying on a handshake between partners with no written terms.
- !Never updating the agreement after members, ownership, or roles change.
Frequently asked questions
What is Operating Agreement?
An operating agreement is a written document that sets out how an LLC is owned and managed, including each member's share, role, and decision-making rights.
What mistakes do beginners make with Operating Agreement?
Relying on a handshake between partners with no written terms. Never updating the agreement after members, ownership, or roles change.
Related terms