Operating Agreement is a private written contract among the members of an LLC that governs ownership percentages, profit allocation, voting rights, management, and exit terms.
An Operating Agreement is the internal constitution of a Limited Liability Company. Unlike the Articles of Organization, it is not filed with the state - it is a private contract signed by the members of the LLC and held in the company records.
The agreement sets out who owns what percentage of the LLC (the membership interests), how profits and losses are allocated (which can differ from ownership percentages), whether the LLC is member-managed or manager-managed, voting thresholds for ordinary and major decisions, capital-contribution and capital-call mechanics, transfer restrictions and rights of first refusal, drag-along and tag-along rights, dissolution events, and tax-elections including whether the LLC will be taxed as a partnership, S-Corp, or C-Corp. Most US states do not legally require an LLC to have an Operating Agreement - California, Delaware, Maine, Missouri, and New York are exceptions - but every bank, investor, and payment processor will ask for one. Without an Operating Agreement, the LLC is governed by the default rules of the state LLC act, which are often unfavorable, particularly around buyouts and dispute resolution. For single-member LLCs, the Operating Agreement is short but still important: it confirms the separation of personal and business assets that protects the limited-liability shield.
You sign the Operating Agreement immediately after the Articles of Organization are filed and the EIN is issued. Banks like Mercury, Brex, and Wells Fargo will ask for it as part of business-account onboarding. Investors, including angels and VCs investing in LLCs (rare but it happens), will require a fully amended-and-restated Operating Agreement that reflects their preferred-unit terms.
If you later convert the LLC to a C-Corp for VC funding, the Operating Agreement is replaced by a Certificate of Incorporation, bylaws, and shareholder agreements.
See what a company actually costs in year one, and how the jurisdictions compare on tax, capital and timeline.
