Free LLC Operating Agreement Template

The articles of organization create the company. The operating agreement sets the rules inside it. This guide covers single-member and multi-member agreements, the clauses to include, the steps to set up an LLC, and a free sample.

An LLC limits its members' personal liability for company debts. That protection comes from the state's LLC statute itself, not from signing an operating agreement.

Single-Member vs. Multi-Member Operating Agreements

An LLC can have one member or several, and the operating agreement is written to fit. Both types set out ownership, management, and the rules of the company. They differ in scope, because a multi-member agreement also needs to cover the relationships between the owners.

Single-member LLC operating agreement

A single-member LLC operating agreement records how the owner runs the company as a business separate from the owner's personal affairs. It describes the owner's role and the role of any manager or registered agent.

The agreement is usually not filed with a government agency. The owner keeps it with the company's records, often at the principal place of business.

Notarization is generally not required for a single-member agreement. Some owners still sign before a notary to confirm their identity and the date of signing.

Multi-member LLC operating agreement

A multi-member LLC operating agreement is built for companies with several owners. It records ownership percentages and how the members work together. Every member should sign it and keep a copy, and the company keeps the original with its records.

A multi-member agreement usually covers:

• LLC management
• Procedures for buying and selling members’ interests (in cases of sale, disability, or death)
• Ownership percentages for each member
• Rights and obligations of the owners
• Voting powers of each member
• Methods for allocating profits and losses
• Meeting procedures

The sections below go through each provision.

What Should an LLC Operating Agreement Include?

An operating agreement records who owns the company, who manages it, and how decisions and money are handled. A clear agreement helps show that the LLC is run as a separate entity, which supports its members' limited liability.

A complete agreement usually includes the following provisions.

Formation of the LLC

This provision should specify the date of the agreement, its location, the company’s formation date, its formal name, and the registered office of the business entity. It should also include the business purpose, the duration of the operating agreement, and whether the LLC is single-member or multi-member.

Equity structures

This section encompasses the following clauses:

• Membership Interest: Clearly define each member’s economic and management interests.
• Classes of Membership Interests: Specify the different types of interests your LLC will have, which may include non-voting, common, profits, and other types of interests.
• Members’ Contributions and Membership Accounts: Detail the forms of members’ contributions, such as cash, property, promissory notes, obligations, or a combination of various forms. Also, include information on whether initial capital contributions will be followed by any additional contributions.
• Allocation of Profits and Losses: Explain how profits and losses are shared among members. Many agreements share them in proportion to ownership, and members can agree on a different split.

Internal management

This section should cover the following aspects:

• Management Authority: Specify who has the power to manage the LLC, whether it’s the members or appointed managers.
• Managers’ Names and Number: If managers are chosen, include their names and the number of managers serving in the LLC.
• Powers and Compensation: State the powers granted to the managers and whether they will receive any compensation for their services.
• Manager Appointment Procedure: Outline the process for appointing managers.
• Manager Meetings: Specify when and how manager meetings can be held and what actions are permissible without organizing a meeting.
• Manager Removal and Replacement: Include details on how managers can be removed or replaced within the LLC.

Voting procedure

When the agreement is silent, the state's default voting rule applies, and that rule differs by state. The agreement can set its own rules. Consider the following elements:

• Alternative Voting Rules: Specify the voting rules you want, such as votes in proportion to ownership or one vote per member.
• Veto Rights: If applicable, allocate veto rights to specific members or managers, giving them the power to block certain decisions.
• Supermajority Votes: Outline any situations that require supermajority votes, where decisions must be approved by a larger-than-usual majority of members or managers.

Limitation of liability and indemnification

In this section of the LLC operating agreement address the following aspects related to liability and indemnification:

• Situations for Holding Members and Managers Harmless: Clearly define the circumstances in which members and managers should be held harmless, protecting them from personal liability for the LLC’s actions.
• Company Indemnification: Specify when the company will indemnify members and managers, providing them with financial protection against any claims, losses, or damages arising from their roles within the LLC.

Books and Records

This section of the operating agreement addresses record keeping and members’ rights to inspect the LLC’s financial records. Consider including the following elements:

• Record-Keeping Requirements: Specify the types of records the LLC must maintain, such as financial statements, tax filings, and membership information.
• Location of Records: Indicate where the LLC’s records will be stored, typically at the principal place of business.
• Rights to Inspect Records: Outline the rights of members to inspect and obtain copies of corporate and accounting records, as well as any restrictions or conditions that may apply.

Member meetings

Outline the guidelines for member meetings, including the following aspects:

• Frequency of Meetings: State how often members meet, such as once a year, or that they meet only when needed.
• Regular and Special Meetings: Specify when regular meetings should be held and under what circumstances special meetings may be called.
• Events Leading to Meetings: Describe the events or situations that can trigger the need to organize a meeting.
• Written Notice: Indicate when and how written notice should be sent to members before meetings.
• Quorum: Define what constitutes a quorum or the minimum number of members required to hold a meeting.
• Decision-Making Requirements: Specify the required number of members needed to make decisions during meetings.
• Voting Rights: Clarify which members are entitled to vote and any related conditions or restrictions.

Membership interests and admission

In this part of the LLC operating agreement address the following aspects related to membership interests and the admission of new members:

• Buying and Selling Rights: Outline the permissible methods for buying and selling membership interests among existing and new members.
• Right of First Refusal: Describe the right of first refusal, which gives existing members the privilege to purchase a departing member’s interest before it is offered to an outside party (applicable to multi-member LLCs).
• Membership Transfers: State whether membership interest transfers are permissible and under what conditions.
• Admission of New Members: Detail the procedure for admitting new members to the LLC.
• Members’ Consent: Specify the required form of consent for members when making decisions related to membership interests and admissions, such as written, electronic, or unanimous consent.

Withdrawal events

This section of the operating agreement should address the impact of withdrawal events, such as a member’s death or disability, on the LLC and its operations:

• LLC Continuation: Specify if the LLC will continue its operations in case a member passes away or becomes disabled, along with any procedures necessary to ensure the company’s ongoing activities.
• LLC Termination: Describe the circumstances and processes for dissolving the LLC in the event of a member’s death or disability, including asset distribution and the winding-up process.

Dissolution and termination of the company’s operation

In this section, address the following aspects related to the dissolution and termination of the LLC:

• Causes for Dissolution: Specify the actions or events that would trigger the dissolution of the LLC, such as member withdrawal, bankruptcy, or legal requirements.
• Asset Distribution: Detail how the assets of the LLC should be distributed among members upon dissolution, taking into consideration any outstanding liabilities and debts.
• Capital Account Withdrawals: State whether members are allowed to withdraw funds from their capital accounts during the dissolution process and under what conditions.
• Winding-Up Process: Describe the procedures and timeline for winding up the LLC’s affairs, including the payment of debts, distribution of remaining assets, and any necessary filings or notifications to relevant authorities.

Amendments

Here, address the procedures and requirements for making amendments to the agreement:

• Consent Requirement: State who approves a change, such as all members or a set majority, and that the approval is in writing.
• Amendment Process: Describe the process for proposing, discussing, and approving amendments to the LLC operating agreement, including any required notice period or meeting procedures.

Miscellaneous provisions

In this section of the LLC operating agreement, include any additional terms or clauses that have not been addressed in the previous sections:

• Governing Law: Specify the state law governing the interpretation, enforcement, and resolution of disputes related to the LLC operating agreement.
• Severability: Include a clause stating that if any provision of the operating agreement is deemed unenforceable or invalid, the remaining provisions will still be in effect.
• Entire Agreement: State that the operating agreement represents the entire agreement between the members regarding the LLC and supersedes any prior agreements or understandings.
• Headings: Note that the headings used throughout the operating agreement are for convenience and reference only and do not affect the interpretation of the agreement’s terms.
• Binding Effect: Mention that the operating agreement is binding upon and inures to the benefit of the members and their respective heirs, executors, administrators, successors, and assigns.

How to Set Up an LLC?

Forming an LLC takes eight steps, from choosing a state to writing the operating agreement. Forms, fees, and timing differ by state, so check your state's filing office before you start. The steps below follow the usual order.

1. Choose the state of incorporation

Many owners form the LLC in the state where the business operates. That is usually the simplest choice for a local business serving a specific community.

Some owners pick another state for its tax or filing rules. If you do, check what that state requires and whether you also need to register in the state where you operate.

If you form the LLC in a state where you do not live, you will usually need a registered agent with a physical address in that state. Registered agents are often available through professional services.

2. Select the name of your business entity

Your company name shapes how customers see the business. Pick a name that is short, easy to remember, and tied to what you do. Most states also require the name to include "Limited Liability Company," "LLC," or another approved abbreviation.

The name usually has to be different from names already on file with the state. Generic names such as "[State] [Niche] LLC" are often taken. Search your state's Secretary of State business database before you file.

Many states let you reserve a name for a limited time before you file. The fee and the length of the reservation depend on the state.

Check that a matching domain name is available before you settle on a name, so your website and your company match.

3. Select an agent for your business

A registered agent receives legal notices for the company. Most states ask for the agent's name and address in the articles of organization, and it helps to record the same details in the operating agreement.

The agent can be a member of the LLC, another individual, or a professional service. In a single-member LLC, you may be able to act as your own agent if your state allows it.

Acting as your own agent has drawbacks. Your name and address may become public, and you need a physical address in the state where the LLC is formed.

A registered agent usually needs a physical street address in the state. A PO box typically does not qualify.

4. Determine the ownership

Decide who owns the company and in what shares. Ownership shares are called units, and each member's units show their percentage of ownership. For example, if an LLC issues 100 units and one member owns 50, that member holds 50% of the company. The percentage changes if new members join.

Ownership has two parts. The economic interest decides how much profit a member receives. The management interest decides how much voting power a member has.

An LLC can generally have as many members as its owners want, and most states allow a company with only one member. Keeping the number of members small makes the company easier to manage.

Also choose an authorized representative who can act for the LLC, for example to open a bank account. Settle ownership before you file the articles of organization, so each member's percentage and role are clear from the start.

5. File the articles of organization

After you set the ownership structure and pick a registered agent, file the articles of organization with the state. Most states accept filings by mail or online through the Secretary of State's office or a similar filing office.

Your state's form sets the exact list of required details. When you complete the articles of organization, most forms ask for items like these:

• The LLC's name, and its place of business and mailing address (which can be the same)
• The name and physical address of the registered agent
• The names of the LLC members or authorized representatives
• An email address for correspondence with the LLC, if the form asks for one

6. Pay the filing fee

Filing the articles of organization usually comes with a filing fee. The amount differs by state and can change, so check your state's current fee before you submit. Most states accept payment online or by check.

After the filing office receives your payment and approves the filing, your LLC is recognized as a separate legal entity. How long approval takes depends on the state and how you file.

Review your state's current filing fees and payment options on the Secretary of State's website before you submit. This helps you avoid delays.

7. Get an Employer Identification Number

An Employer Identification Number (EIN) is the IRS number that identifies your business. Many banks ask for one when you open a business account, and you need one to hire employees or file certain tax returns.

Fortunately, obtaining an EIN is a simple process that can be completed online through the IRS website or by submitting a specific application form by mail.

Apply for your EIN soon after you form the LLC, so your bank account and tax filings are ready when you start doing business.

8. Create an operating agreement

Once your LLC is registered, create the operating agreement. It is usually not filed with a government agency. The company keeps it with its internal records.

The agreement is usually the document that records each member's ownership percentage. Even where state law does not require a written agreement, having one is good practice.

Our online document builder helps you create an LLC operating agreement with the clauses described above. You answer a few questions and download a customized document.

You can also use the free LLC operating agreement template we provide in PDF format if it suits your needs.

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Sample Operating Agreement

The sample below shows how a basic multi-member operating agreement is laid out. It has articles for formation, membership, management, money, transfers, dissolution, and notices. Replace each bracketed item with your own details and adapt each clause to your state and company before you sign.

LLC vs. Sole Proprietorship

If you are the only owner, you may wonder how a single-member LLC differs from a sole proprietorship. Both are simple to run, but they differ in four main ways.

• Liability: In an LLC, owners are generally not personally liable for the company's debts. In a sole proprietorship, personal and business liability are the same, so creditors can reach the owner's personal assets, such as a home or car.
• Bank accounts: A sole proprietor can mix personal and business funds. LLC owners should keep business money in a separate account.
• Business name: An LLC's name is registered with the state and shows the business structure. A sole proprietor can operate under the owner's own name. To use a different name, the owner may need to register for a DBA (doing business as) name.
• Taxes: By default, both are pass-through, so profits are taxed once on the owner's personal return. An LLC can also elect to be taxed as a corporation. A sole proprietorship has only one tax treatment.

Our document builder walks you through each clause covered in this guide. You can download and print the finished agreement.

General information, not legal or tax advice.

Jennifer M. Settles

Author & Attorney

With over 25 years of experience as a business and transactional attorney, Jennifer has mastered the craft of closing highly successful deals for her clients. Through her wide-ranging expertise in commercial contracts, real estate transactions, M&A and corporate law, Jennifer secures results that are second-to-none.