How to Write an LLC Operating Agreement in the United States

Member-managed or manager-managed?

The first structural choice is who runs the company. In a member-managed LLC the owners themselves conduct the business — opening bank accounts, signing contracts, and making day-to-day decisions — with major actions typically requiring the approval of members holding a majority of the ownership interests, and actions outside the ordinary course (admitting a new member, selling substantially all assets, dissolving) requiring the approval of all members.

In a manager-managed LLC the members appoint a Manager who handles operations, while reserving a defined list of significant decisions — admitting members, selling the company's assets, merging, incurring debt outside the ordinary course, or dissolving — for member approval. Manager-managed structures suit LLCs with passive investors or a single operating owner. If you choose this route, the agreement should also indemnify the Manager for good-faith conduct, excluding fraud, willful misconduct, and gross negligence.

Ownership percentages and admitting members

Each member's ownership stake — its Percentage Interest — determines voting power, the split of profits and losses, and the share of assets on dissolution. In a multi-member LLC the percentages of all members must total exactly 100%; an agreement that doesn't add up is a drafting error courts and banks will flag.

State clearly that no new member may be admitted except by the written consent of all existing members and a written amendment to the agreement. This keeps existing owners in control of who joins the company.

Capital contributions

Record what each member contributes at the outset — cash, property, or services — because those initial contributions establish each member's capital account and the baseline for the ownership split. A single-member LLC simply notes the sole member's contribution.

Address future funding too. The standard rule is that no member is obligated to contribute additional capital unless all members agree in writing, so an owner is never forced to put in more money without consent. Maintain a capital-account record for each member in the company's books.

Distributions and tax election

Distributions of cash and other assets are normally made pro rata in proportion to each member's Percentage Interest, at times decided by the manager or by a majority of the members (or by the sole member). Profits and losses are allocated on the same proportional basis.

By default an LLC is a pass-through entity: a single-member LLC is a disregarded entity and a multi-member LLC is taxed as a partnership, so income flows to the members' personal returns. The members can instead elect S-corporation treatment (IRS Form 2553) or C-corporation treatment (IRS Form 8832). An S-corporation election requires distributions and allocations consistent with a single class of stock; a C-corporation is taxed at the entity level and distributions are treated as dividends. Because members owe tax on their allocated share of pass-through income whether or not cash is distributed, many agreements add a mandatory tax distribution — a promise to distribute, out of available cash, at least enough to cover the estimated tax on each member's share. Tax distributions are treated as advances that offset later distributions.

Transfers, buyout, and deadlock

Multi-member LLCs need rules for interests changing hands. A common default is a right of first refusal: a member who wants to sell must first offer the interest to the other members on the same terms, giving them a window (often thirty days) to buy pro rata. Alternatives are requiring the consent of all members for any transfer, or allowing interests to be freely transferable. In each case a transferee who isn't formally admitted holds only the economic rights of an assignee — distributions but no management or voting rights.

Plan for gridlock and departure as well. For a 50/50 or otherwise tied vote, a deadlock mechanism such as a buy-sell (shotgun) clause, mediation followed by a buyout at fair value, or dissolution keeps a stalemate from paralyzing the company. Decide what happens on a member's death: either the company or remaining members buy out the interest at fair value, or it passes to the member's estate or heirs as an assignee with no management rights.

1. 1.Identify the company: legal name, state of formation, formation date, business purpose, principal office, and registered agent.
2. 2.Choose member-managed or manager-managed, and name the initial Manager if applicable.
3. 3.List every member with their ownership percentage, making sure the percentages total 100%.
4. 4.Record each member's initial capital contribution and the rule for future contributions.
5. 5.Set distribution terms and choose the federal tax treatment (default pass-through, S-corp, or C-corp), adding a tax distribution if desired.
6. 6.Add transfer restrictions, a deadlock mechanism, and death/withdrawal buyout terms for multi-member LLCs.
7. 7.Confirm the EIN, include limitation-of-liability and dissolution clauses, and have every member sign and date.

Liability protection and single-member specifics

The agreement should confirm that no member is personally liable for the company's debts solely by reason of membership, and that failing to observe corporate formalities is not by itself grounds for piercing the veil. For a single-member LLC this clause matters most, because a written operating agreement is one of the ways an owner shows the company is a genuine, separate entity.

If the sole member is married and lives in a community-property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin), the spouse may hold a community interest in the membership interest. Adding a spousal consent — the spouse signing to acknowledge the interest is bound by the agreement — closes that gap.