Free LLC Operating Agreement Template — Single & Multi-Member

An LLC operating agreement is the internal governing document of your limited liability company. Even if your state doesn't require one, every LLC should have an operating agreement — it protects your liability shield, establishes the rules your LLC runs by, and prevents costly disputes between members.

What Is a LLC Operating Agreement?

An LLC operating agreement is a contract among the members (owners) of a limited liability company that governs ownership percentages, management structure, voting rights, profit and loss distributions, member admission and withdrawal procedures, and the process for dissolving the company. It is the LLC equivalent of corporate bylaws and shareholder agreements combined. Without an operating agreement, your state's default LLC statutes govern all these matters — and default rules rarely match what members actually want.

When Do You Need a LLC Operating Agreement?

• When forming a new LLC (should be executed at or shortly after formation)
• When adding new members to an existing LLC
• When restructuring ownership percentages or management roles
• When converting a single-member LLC to a multi-member LLC
• When seeking bank financing (most banks require an operating agreement)
• When a member wants to sell or transfer their membership interest

Legal Considerations

• While only a few states (CA, DE, MO, NE, NY) legally require an operating agreement, every LLC should have one — without it, courts may pierce the corporate veil more easily
• An operating agreement cannot override state LLC statutes in ways that harm third parties, members' statutory rights, or creditors
• Tax elections (LLC taxed as sole proprietor, partnership, S-corp, or C-corp) should be aligned with the operating agreement's distribution provisions
• Single-member LLC operating agreements are particularly important for maintaining the liability shield — they demonstrate the LLC is operated as a separate entity, not an alter ego
• Operating agreements should address buy-sell provisions specifying how a departing or deceased member's interest is valued and transferred

State-Specific Requirements

Delaware, Wyoming, and Nevada are popular LLC formation states with flexible and business-friendly LLC statutes. However, if your LLC operates in California, you must register there regardless of where it was formed, and California imposes an $800 annual franchise tax on all LLCs doing business in the state. Your operating agreement should reference your state's LLC act. Wyoming and Nevada have strong charging order protection that prevents creditors from taking over a member's interest.

How to Complete This Document — Step by Step

1. Identify All Members and Their Ownership Percentages
   List each member's full name, address, and ownership percentage. Confirm the total adds up to 100%.
2. Choose Your Management Structure
   Member-managed: all members have equal management rights (best for small LLCs). Manager-managed: designated managers (members or non-members) run the business, giving investors passive roles.
3. Define Capital Contributions
   Document what each member contributed (cash, property, services) to acquire their membership interest. This is the basis for their ownership percentage.
4. Establish Distribution Rules
   Define how and when profits and losses are allocated among members. Typically pro-rata by ownership percentage, but custom arrangements are common.
5. Set Voting Rights and Procedures
   Define voting thresholds for major decisions: admission of new members, sale of the business, amendment of the operating agreement, and dissolution.
6. Include Buy-Sell Provisions
   Define what happens when a member wants to sell their interest, dies, becomes incapacitated, divorces, or goes bankrupt. Right of first refusal provisions protect remaining members.

Common Mistakes to Avoid

• Not updating the operating agreement when membership or ownership percentages change
• No buy-sell provisions — creates gridlock and expensive disputes when a member wants to exit
• Using a generic template without customizing it to your state's LLC act
• Treating the LLC as an alter ego (commingling personal and business funds) — operating agreement alone cannot save you if you don't follow it