What is an LLC operating agreement and what should it include

The operating agreement is the most important LLC document that no government ever sees. It is also the one most often skipped. This guide explains what it does, what it should cover, and why even a one-person LLC benefits from having one.

By Hamza Fida, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

An LLC operating agreement is the internal contract between the members that sets out ownership, profit sharing, management, voting, and what happens when a member joins, leaves or dies. It is not filed with the state, but banks often ask for it, a few states such as New York require one, and without it your state's default rules decide those questions.

At a glance

What it is
The internal contract between the LLC's members
Filed with the state?
No
Required?
In a few states, such as New York. Useful everywhere
Without one
Your state's default LLC rules apply
Who asks for it
Banks, investors, lenders and sometimes the IRS
Single-member LLCs
Still worth having, for separation and succession
What is an LLC operating agreement and what should it includeWhat it is: The internal contract between the LLC's members; Filed with the state?: No; Required?: In a few states, such as New York. Useful everywhere; Without one: Your state's default LLC rules apply; Who asks for it: Banks, investors, lenders and sometimes the IRS; Single-member LLCs: Still worth having, for separation and succession.KEY FACTS AT A GLANCEWhat is an LLC operating agreement and what shouldit includeWhat it isThe internal contractbetween the LLC's membersFiled with the state?NoRequired?In a few states, such asNew York. UsefuleverywhereWithout oneYour state's default LLCrules applyWho asks for itBanks, investors, lendersand sometimes the IRSSingle-member LLCsStill worth having, forseparation and successionChecked against official sourcesTax BakersWhat is an LLC operating agreement and what should it includeWhat it is: The internal contract between the LLC's members; Filed with the state?: No; Required?: In a few states, such as New York. Useful everywhere; Without one: Your state's default LLC rules apply; Who asks for it: Banks, investors, lenders and sometimes the IRS; Single-member LLCs: Still worth having, for separation and succession.KEY FACTS AT A GLANCEWhat is an LLC operating agreementand what should it includeWhat it isThe internal contract between the LLC'smembersFiled with the state?NoRequired?In a few states, such as New York. UsefuleverywhereWithout oneYour state's default LLC rules applyWho asks for itBanks, investors, lenders and sometimes theIRSSingle-member LLCsStill worth having, for separation andsuccessionChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

What does an operating agreement do?

It sets the rules the members agree to run the LLC by. State LLC laws contain default rules for everything from voting to what happens when a member dies. The operating agreement replaces most of those defaults with terms the members choose. Where it is silent, the defaults apply.

Is an operating agreement required?

A few states require LLCs to adopt one. New York, for example, requires a written operating agreement to be adopted within 90 days of filing the Articles of Organization. See how to form an LLC in New York. Most states do not require it, but it is expected in practice: banks often ask to see it before opening an account, and investors and lenders always will.

Does a single-member LLC need one?

Yes, for three reasons:

  • It shows the LLC is separate from you, which supports the liability protection the LLC gives.
  • It says who runs the business if you die or are incapacitated, which otherwise can leave the company frozen.
  • It proves ownership and authority to banks and payment platforms, especially for owners outside the US.

What should it include?

SectionWhat it settles
Members and ownershipWho owns what percentage, and what each contributed
Profits, losses and distributionsHow profit is shared and when money is paid out
ManagementMember-managed or manager-managed, and who can sign contracts and open accounts. See member-managed vs manager-managed LLC
VotingWhich decisions need a majority and which need everyone
Capital callsWhether members must put in more money, and what happens if they do not
Transfers of ownershipRestrictions on selling, and rights of first refusal
Leaving, death or disabilityHow a member's interest is bought out and valued
Tax mattersTax classification, the partnership representative for IRS audits, and tax distributions
Deadlock and disputesWhat happens when members disagree
DissolutionHow the LLC is wound up and assets divided

What matters most with several members?

Profit sharing, buyouts and deadlock. Multi-member LLCs taxed as partnerships can allocate profit differently from ownership, within the tax rules, which is powerful and needs careful drafting. Buyout terms decided while everyone agrees are far easier than terms negotiated during a dispute. See single-member vs multi-member LLC.

Does S corporation status affect it?

Yes. An LLC taxed as an S corporation must have only one class of ownership, so profit and distributions must follow ownership percentages. Provisions that give some members different distribution rights can end the S election. See Form 2553.

When should you update it?

  • A member joins, leaves or changes their percentage.
  • The LLC changes its tax classification.
  • Management changes, such as appointing a manager.
  • The business takes outside investment or a loan with conditions.

Keep the signed agreement and every amendment with the company's records.

Changes that also need a state or IRS filing are covered in how to amend an LLC.

Need an operating agreement?

We draft an operating agreement that fits your ownership and tax setup, for single-member or multi-member LLCs, and update it when things change.

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Questions people ask

Is an operating agreement filed with the state?

No. It is an internal document kept with the company's records.

Is an operating agreement legally required?

In a few states, such as New York, which requires one within 90 days of formation. Elsewhere it is optional but expected by banks and investors.

Does a single-member LLC need an operating agreement?

It is strongly advisable, to show separation from the owner, set succession, and prove ownership to banks.

What happens if an LLC has no operating agreement?

The state's default LLC rules decide questions such as voting, profit sharing and what happens when a member leaves.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. New York Limited Liability Company Law section 417: operating agreement
  2. Revised Uniform Limited Liability Company Act: operating agreement and default rules
  3. Internal Revenue Code section 1361: S corporation single class of stock
  4. IRS: Instructions for Form 1065 (2025)
  5. IRS: Instructions for Form 2553

Rules and fees change. If you are reading this long after September 30, 2026, confirm the figures with the source before you rely on them.

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This guide is general information. It is not tax or legal advice for your situation.