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What is an operating agreement?
An operating agreement is the internal rulebook for your LLC — who owns what, who decides what, and what happens if things change. Most states don’t require one, but running an LLC without it is a mistake.
What it actually does
It spells out the rules that otherwise default to your state’s generic law. A good operating agreement covers:
- Ownership — who the members are and what percentage each holds.
- Profits & losses — how money is split and distributed.
- Management — who can make decisions and sign contracts.
- Changes — how members join, leave, or sell their stake, and how the company can be dissolved.
Why even a single-member LLC needs one
If you’re the only owner, it might feel pointless — but it isn’t. The agreement reinforces that your LLC is a separate entity, which helps protect your personal liability shield. Banks and investors often ask to see it, and it makes your intentions clear if you ever add a partner.
What happens without one
Your business runs on your state’s default rules, which may not match what you want — especially around splitting profits or resolving disputes between partners. With multiple owners, the absence of an agreement is how friendships and businesses fall apart.
Keep it current
Revisit the agreement whenever ownership or roles change, and store a signed copy with your business records. It’s a living document, not a one-time formality.
Forming an LLC?
The Pro plan includes a customized operating agreement with your filing.
General information, not legal or tax advice. Rules vary by state and change over time. Filerra is not a law firm.