What to Include in Your LLC Operating Agreement (Checklist)

Most operating agreements fall into one of two traps. They are either a two-page free template that says almost nothing, or a forty-page monster copied from a corporation’s bylaws that nobody will ever read. Neither one protects you when it counts.

A good operating agreement is specific to your business and covers the decisions that cause real fights: who owns what, who decides what, how money moves, and how people leave. Use this checklist to audit your agreement, whether you are writing one from scratch or reviewing a template.

The Basics: Identify the Company and Its Owners

Start with the foundation. Your agreement should state the LLC’s legal name, its principal address, its state of formation, and its business purpose. Then name every member, their capital contribution, and their ownership percentage.

This sounds obvious, but plenty of templates leave ownership percentages vague or “to be determined.” Nail down exact numbers. A 50/50 split, a 70/30 split, whatever it is, write it as a number. Future disputes almost always start with someone remembering the deal differently.

If you are the only owner, the same principle applies. Our guide to single-member operating agreements explains why solo owners still need this in writing, and whether single-member LLCs need one at all covers the cases where it matters most.

Management Structure and Voting Rights

Decide whether the LLC is member-managed or manager-managed, and say so explicitly. In a member-managed LLC, all owners participate in daily decisions. In a manager-managed LLC, designated managers run the show and other members are more like investors.

Then define voting. Which decisions need a simple majority, which need a supermajority, and which need everyone to agree? Day-to-day operations might need a majority. Selling the company, taking on major debt, or bringing in a new member should need more. Write the thresholds as percentages, not adjectives.

Money In: Capital Contributions

Document what each member put in or promised to put in. Cash, equipment, property, and sweat equity all count, but they need to be valued and recorded. Also decide what happens when the LLC needs more money later.

Capital calls are the clause most templates skip and most disputes need. Can the LLC require members to contribute more? What happens if someone cannot or will not pay? Spell out whether their ownership gets diluted, whether the others can cover the shortfall, and what penalties apply. An unfunded capital call with no consequences is just a suggestion.

Money Out: Distributions and Tax Allocations

How and when do profits get distributed? Pro rata by ownership is the default, but your agreement can say otherwise. Define the timing too: monthly, quarterly, annually, or at the managers’ discretion.

Separate from distributions, address tax allocations. LLCs are usually pass-through entities, which means members owe tax on their share of profits whether or not cash was actually distributed. Your agreement should include tax distribution provisions so members have the cash to pay the tax on income they were allocated. This is the clause that prevents a nasty surprise every April.

Adding Members and Transferring Ownership

Your agreement should control how ownership changes hands. Can a member sell their interest to a stranger without asking? In most well-drafted agreements, no. Common protections include a right of first refusal for the LLC and the other members, plus required approval before any transfer.

Also decide what a buyer actually gets. Many agreements distinguish between an economic interest (the right to receive distributions) and full membership (voting rights and management participation). A departing member’s ex-spouse or creditor might be entitled to money, but that does not mean they get a vote.

Buy-Sell Provisions: The Clause That Saves Partnerships

Every multi-member LLC needs a plan for when someone wants out, dies, becomes disabled, or gets divorced. Buy-sell provisions, sometimes called buyout provisions, set the process in advance while everyone still likes each other.

The essentials: what events trigger a buyout, how the interest is valued (a formula, an appraisal process, or a fixed price updated annually), how the purchase is funded, and the payment terms. Without a valuation method agreed in advance, every exit becomes a negotiation, and negotiations between ex-partners go badly.

Dissolution: How the LLC Ends

Define what events dissolve the LLC and who has the authority to wind it up. Cover how debts get paid, how remaining assets get distributed, and who handles the final tax filings. Nobody likes writing this section, but the alternative is letting state default rules decide, and those defaults are one-size-fits-all.

The Sections Everyone Forgets

Run through these often-missed items before you sign.

Amendment procedures

State exactly how the agreement itself can be changed. Unanimous consent is the common default, but you can set a lower threshold if you prefer. Without this clause, you fall back on state law, which usually means unanimous.

Non-compete and confidentiality

If members could plausibly compete with the LLC or walk away with its client list, address it now. Keep the scope reasonable, because overbroad restrictions get thrown out.

Dispute resolution

Mediation or arbitration clauses keep disagreements out of court. Decide the process, the location, and who pays. A deadlocked 50/50 LLC with no tiebreaker mechanism is a lawsuit waiting to happen.

Record-keeping duties

Assign responsibility for keeping the books, holding the signed agreement, and maintaining meeting records. An operating agreement nobody can find is barely better than none at all.

Sign It, Store It, Review It

Every member should sign and date the agreement. Keep the signed original with your other formation documents, somewhere you can actually find it. Unlike your articles of organization, the operating agreement is not filed with the state. It lives in your files.

Then review it yearly. New members, new investors, new lines of business, and tax elections all warrant a fresh look. An agreement that described your business three years ago may not describe it today.

The best operating agreement is the one that answers your specific what-ifs before they become disputes.

Red Flags in Cheap Templates

Not all templates deserve your trust. Watch for agreements that never mention buyouts, as if no one will ever leave. Watch for voting sections that say “majority rules” without defining what counts as a majority or which decisions it applies to.

Be wary of templates with no amendment clause, no dispute resolution section, and no mention of tax distributions. These gaps are exactly where real disagreements live. A template that skips them was written to look complete, not to be complete.

Finally, check the state. A template drafted for another state’s default rules can quietly contradict yours. If the template does not name a state, assume it was written generically and verify every default against your own statute.

Watch: What Every Owner Needs to Include

This video walks through the essential sections of an LLC operating agreement, including the parts about owners leaving, passing away, or selling that most templates gloss over.

Frequently Asked Questions

How long should an operating agreement be?

Length does not matter, completeness does. A focused 10-page agreement that covers your actual situation beats a 40-page template full of irrelevant clauses. Aim for thorough, not thick.

Do I need a lawyer to review my operating agreement?

For a simple single-member LLC, a quality template plus careful customization is often enough. For multiple members, outside investors, or unusual profit splits, a business attorney’s review is money well spent.

Can I use the same template as my friend’s LLC?

You can start from the same template, but the finished agreement should reflect your ownership, your capital, and your rules. Copying someone else’s signed agreement verbatim is how mismatched clauses end up governing your business.

What happens if my agreement contradicts state law?

State LLC statutes set both default rules and mandatory rules. You can override the defaults, but not the mandatory ones. If a clause conflicts with a mandatory rule, the statute wins. This is one reason attorney review matters for complex agreements.

How often should I update the checklist?

Review the agreement any time ownership, management, capital, or the business model changes, and give it a quick annual read even if nothing changed. Outdated agreements cause the same disputes they were written to prevent.

The SBA’s guide to business structures explains where the operating agreement fits into the bigger formation picture. The IRS LLC page covers how your agreement’s tax provisions interact with federal rules.