Operating Agreement

An operating agreement is the foundational governance document of a limited liability company that defines the rights, responsibilities, and economic relationships among members — covering ownership percentages, capital contributions, profit and loss allocation, management structure (member-managed vs. manager-managed), voting rights, distribution policies, transfer restrictions, and dissolution procedures. While only a handful of states legally require an operating agreement (most notably New York, California, Maine, Delaware, and Missouri), every LLC should have one because without it, the default provisions of the state's LLC statute govern — and default rules often don't align with the members' actual intentions regarding distributions, decision-making authority, or exit terms. For single-member LLCs, an operating agreement is critical for maintaining the corporate veil and demonstrating that the LLC is a separate legal entity from the owner, which is essential for preserving personal liability protection. Key provisions that distinguish well-drafted operating agreements include anti-dilution protections, drag-along and tag-along rights, capital call provisions, put/call options for member buyouts, non-compete and non-solicitation clauses, and deadlock resolution mechanisms. Banks, investors, and commercial landlords routinely request copies of the operating agreement during due diligence, and an incomplete or missing agreement can delay or derail financing, leasing, and partnership opportunities. For multi-member LLCs, the operating agreement must carefully address the allocation of tax items under IRC Section 704(b) substantial economic effect rules to withstand IRS scrutiny. doola provides attorney-reviewed operating agreement templates and customization services as part of its formation packages, ensuring legal compliance and tailored governance for each business structure.