LLC Operating Agreement Law in the United States
Most states do not legally require an LLC to have an operating agreement, but some do. Even where not required, an operating agreement is critical to override unfavorable state default laws and protect your business structure.
Is an operating agreement legally required for an LLC?
No, most states do not require an LLC to have an operating agreement by statute. However, a few states do impose requirements. In all states, having one is strongly recommended to avoid statutory defaults governing your LLC's internal affairs.
What happens if my LLC doesn't have an operating agreement?
If your LLC operates without an operating agreement, your state's default LLC statute governs all internal relationships. This means statutory defaults apply for management structure (usually member-managed), amendment procedures (often requiring unanimous consent), and profit/loss allocations (usually in proportion to contributions). For single-member LLCs, operating without a formal agreement can jeopardize liability protection by failing to separate personal and business affairs.
Does an operating agreement need to be notarized or filed?
No, an operating agreement generally does not need to be filed with the state or notarized to be enforceable. Under Delaware law and many state statutes, an operating agreement is defined as "any agreement (whether referred to as a limited liability company agreement, operating agreement or otherwise), written, oral or implied" (6 Del. C. § 18-101(7)). While not required, a written and signed agreement is strongly recommended for clarity and proof of terms. You should keep the executed agreement with your LLC's records.
What should I put in my LLC operating agreement?
While no jurisdiction mandates specific clauses, an effective agreement should address core areas to override statutory defaults.
Management Structure Designation
The agreement must specify whether the LLC is member-managed or manager-managed. Under the Revised Uniform Limited Liability Company Act (RULLCA), an LLC is member-managed by default unless the agreement provides otherwise (RULLCA § 17704.07). This election determines control and fiduciary duties.
| Structure | Ordinary Business | Extraordinary Actions |
|---|---|---|
| Member-managed (default) | Majority of members | Unanimous member consent |
| Manager-managed | Managers decide | Member consent required for asset sales, mergers, amendments (RULLCA § 17704.07(c)) |
Delaware offers maximum flexibility: the operating agreement may create classes with varying rights, grant voting on any basis (per capita, by number, by financial interest, by class, or any other basis), or provide that certain members have no voting rights (6 Del. C. § 18-302).
Amendment Procedures
If the operating agreement is silent, unanimous member consent is required to amend under RULLCA and Delaware law (for LLCs formed on or after January 1, 2012). The agreement should specify: who may propose amendments; voting thresholds; notice requirements; and effective date mechanics. Delaware permits amendments approved by non-parties or conditioned on external events (6 Del. C. § 18-302(e)-(f)).
Tax Compliance Provisions (For Multi-Member LLCs)
LLCs taxed as partnerships must include provisions satisfying federal tax requirements to control allocation consequences:
- Capital account maintenance per 26 C.F.R. § 1.704-1(b)(2)(iv)
- Liquidating distributions matching positive capital account balances
- Deficit restoration obligations or qualified income offset provisions (26 C.F.R. § 1.704-1(b)(2)(ii)(d))
- Minimum gain chargeback provisions for nonrecourse debt (26 C.F.R. § 1.704-2(f))
Allocations lacking "substantial economic effect" under these regulations are reallocated by the IRS according to the partner's interest in the partnership.
What can't I put in an LLC operating agreement?
Mandatory Floors That Cannot Be Eliminated
| Jurisdiction Type | Prohibited Provision |
|---|---|
| All states | Elimination of the implied covenant of good faith and fair dealing (6 Del. C. § 18-1101(c); RULLCA § 17701.10(c)) |
| RULLCA states | Elimination of the duty of loyalty or duty of care (RULLCA § 17701.10(c)) |
| RULLCA states | Liability limitation for: breach of loyalty; improper financial benefit; intentional harm; criminal violations (RULLCA § 17701.10(h)) |
| All states | Limitation of liability for bad faith violations of the implied covenant (6 Del. C. § 18-1101(e)) |
Federal Preemption of Bankruptcy-Triggered Forfeitures
Under 11 U.S.C. § 541(c)(1), provisions that automatically forfeit, modify, or terminate a member's entire interest upon bankruptcy filing are preempted with respect to economic rights. However, governance rights may be terminable. Milford Power Co., LLC v. PDC Milford Power, LLC, C.A., 866 A.2d 738 (Del. Ch. 2004) established that ipso facto clauses are enforceable to divest governance rights but preempted as to bare economic rights. The bankrupt member retains economic rights as an assignee but loses participatory governance rights.
Unreasonable Restrictions
RULLCA prohibits "unreasonably" restricting: the right to maintain a direct or derivative action; duties and rights regarding records and information; and other specified member rights (RULLCA § 17701.10(c)). Courts may invalidate provisions where "in light of the purposes and activities of the limited liability company, it is readily apparent" that the objective or means are unreasonable (RULLCA § 17701.10).
Is my LLC operating agreement legally binding?
Consideration and Binding Effect
Operating agreements require standard contract consideration. Notably, single-member LLC agreements are valid without bilateral consideration—Delaware explicitly provides that such agreements are "not unenforceable solely because there is only one party" (6 Del. C. § 18-101(9)).
Members may be bound without signing.
Formal Requirements
Under Delaware and many states, operating agreements may be oral, written, or implied (6 Del. C. § 18-101(7)). While Delaware and many states permit oral agreements, written documentation is strongly recommended for enforceability.
Third-Party Reliance
Filed public records (e.g., articles of organization) prevail over conflicting operating agreement terms for third parties who reasonably rely on them, though members remain bound by the agreement among themselves (RULLCA § 17701.12(d)).
What mistakes should I avoid in my LLC operating agreement?
Conflating Economic and Governance Rights
Many drafters assume "membership interest" is a unified bundle. Under Delaware § 18-702, interests are bifurcated: assignment transfers only economic rights; governance rights require operating agreement provision or unanimous consent. Mack Bros. v. Keypoint Intelligence, LLC, C.A. No. 2025-0422-DH (Del. Ch. Oct. 29, 2025) held that profits interest holders on capitalization tables lack statutory inspection rights absent compliance with operating agreement membership requirements.
Overbroad Anti-Suit Provisions
Provisions requiring majority approval before any member may commence litigation "involving the Company" may be held unenforceable as applied to direct claims. In re: Dynamk Fund Advisors LLC, C.A. No. 2026-0002-JTL (Del. Ch. May 20, 2026) interpreted such clauses to apply only to derivative claims; an "Every-Claim Reading" barring direct claims including judicial dissolution is "dubious" under Delaware law.
Inadequate Valuation Mechanisms
Vague "fair market value" standards without specified methodology, appraisers, or tie-breakers invite litigation. Kieran Walsh v. White House Post Productions, LLC (Del. Ch.) held that issuing a buyout notice under an appraisal process creates a bilateral contract the company cannot unilaterally withdraw from—locking parties into a potentially flawed process.
Improper Fiduciary Duty Elimination
In RULLCA jurisdictions, attempting to eliminate entirely the duty of loyalty or care renders provisions unenforceable. Even in Delaware, the implied covenant of good faith and fair dealing cannot be eliminated, and Faiz Khan v. Warburg Pincus, LLC (Del. Ch. Apr. 30, 2025) confirmed that explicit contractual provisions control over implied covenant challenges—the covenant cannot rewrite contracts when parties dislike outcomes.
Failure to Address Federal Partnership Representative
The Bipartisan Budget Act of 2015 requires partnerships to designate a Partnership Representative with sole authority to act for the partnership in IRS audits. Agreements should address: designation process; qualifications (including "substantial presence" in the U.S.); removal procedures; and indemnification—recognizing that statutory binding authority is absolute. Because these rules depend on your specific LLC structure and tax status, Ask Sawyer researches federal and state law to answer questions about your facts.
Which states require a written operating agreement?
Requirements vary significantly by state. For a complete analysis of your state's specific rules, Ask Sawyer provides research on state-specific operating agreement requirements and drafting considerations.