An operating agreement is a critical internal governance document used by Limited Liability Companies (LLCs) to establish and outline the management and operational structure of the business. This document serves as a blueprint for how the LLC will be run, detailing the roles and responsibilities of each member or manager, as well as defining the ownership interests among the parties involved.

The operating agreement is a legally binding document, meaning that once it is agreed upon and signed by the members, it holds legal weight and must be adhered to by all parties. It is maintained internally and kept at the physical location of the business rather than being filed with the state. This internal nature of the document means that while it is not publicly accessible, it is essential for the smooth operation and governance of the LLC.

While many states do not legally require LLCs to have an operating agreement, it is highly recommended as a best practice for several reasons. Having a well-drafted operating agreement helps prevent misunderstandings and disputes among members by clearly defining each person’s role, authority, and share of ownership. It also provides a framework for decision-making processes, profit and loss distribution, and procedures for handling potential conflicts or changes in the membership structure.

In addition, an operating agreement can be crucial in establishing the LLC’s credibility and professionalism. It demonstrates to investors, lenders, and partners that the business is well-organized and has a structured plan in place. Moreover, having this document in place can help protect the LLC’s limited liability status by reinforcing the separation between personal and business assets, which is crucial for maintaining the legal protections afforded by the LLC structure.

In summary, while not universally mandated, an operating agreement is a valuable document for LLCs, promoting clear management practices, reducing potential conflicts, and enhancing the overall professionalism of the business.

We offer an operating agreement template that comes with our Starter and Stress-free package plans. It can also be purchased individually, and if that's what you need, please reach out directly to our team.

Your operating agreement template can be found in the Documents section of your Company Rock dashboard, under the name Operating Agreement.