When state LLC statutes say members can include “any other provisions” in an operating agreement, they mean the customizations that keep the business from running on generic defaults. Any other provisions in an LLC operating agreement are the clauses that override statutory fallback rules on management, fiduciary duties, capital, taxes, transfers, deadlock, indemnification, and everything else your members actually agreed to. Skip them and the state writes your deal for you.
Every state has an LLC statute that supplies default rules for profit sharing, voting rights, and what happens when a member leaves. Silence in your agreement means those defaults control. Most statutes split profits equally regardless of what each member contributed. Most give every member equal voting power regardless of ownership percentage. If those outcomes don’t match what your members shook hands on, the only fix is putting the real deal in writing. The provisions below are the ones experienced business attorneys fight hardest to include.
Management and Control
The first structural choice is whether the LLC will be member-managed or manager-managed. In a member-managed LLC, every owner shares authority over daily operations. In a manager-managed LLC, one or more designated people run the business while the remaining members are passive investors. Managers don’t have to be members; an LLC can appoint an outside professional.
The distinction matters more than most people realize. In a member-managed structure, every member owes fiduciary duties to the company and to each other. In a manager-managed structure, those duties typically fall only on the appointed managers. The agreement should spell out which decisions managers can make alone, which require a member vote, and what vote threshold applies. Even in manager-managed LLCs, members commonly reserve a vote on taking on major debt, selling substantial assets, admitting new members, and changing the business’s core purpose.
Removal is the other half of this section. Without a removal clause you may be stuck with a manager who is underperforming or acting against the company’s interests. For-cause removal limits ouster to specific grounds like fraud, gross negligence, or a felony conviction, protecting the manager from being pushed out over ordinary disagreements. Without-cause removal lets members remove the manager at any time by a specified vote, giving the ownership group more flexibility but less stability for the manager. Whichever approach you pick, define the required vote (majority, supermajority, or unanimous) and the notice process. A vague removal clause is almost as bad as none.
Modifying Fiduciary Duties
One of the more powerful custom provisions available in many states is the ability to modify the fiduciary duties members and managers owe each other. By default these include a duty of loyalty (don’t compete with the LLC, don’t steal its opportunities, don’t self-deal) and a duty of care (don’t act recklessly or with gross negligence).
Most states that follow the Revised Uniform Limited Liability Company Act don’t let you eliminate the duty of loyalty entirely, but they do let you identify specific activities that won’t count as violations. If your LLC has members who run other businesses in the same industry, the agreement can explicitly permit those outside activities. It can also set a process where members vote to approve specific transactions that would otherwise be loyalty violations, as long as everyone gets full disclosure.
The duty of care usually can’t be reduced below gross negligence. The obligation of good faith and fair dealing can’t be eliminated in any state, though the agreement can define how that obligation is measured.
A related clause is the corporate opportunity waiver, which lets specified members pursue business opportunities on their own even if those opportunities fall within the LLC’s line of business. This matters most when members are active in the same industry and will inevitably encounter deals that could go to the LLC or to them personally. Without an explicit waiver, a member who takes a deal for themselves risks a breach-of-loyalty claim. Getting this right up front prevents the kind of lawsuit that destroys business relationships.
Capital Contributions and Profit Allocation
Capital contributions are what each member puts into the business at the start and over time. Cash, property, services, or a promise to contribute in the future all qualify. The agreement should document exactly what each member contributed, the agreed-upon value, and what ownership percentage that contribution represents.
Things get interesting when the agreement allocates profits and losses differently from ownership percentages. An LLC with two 50/50 owners might allocate 70% of profits to one member for the first few years to reflect a larger initial investment or a heavier day-to-day role. The IRS respects these special allocations only if they have “substantial economic effect,” meaning the allocation must actually affect the members’ economic outcomes and not just shift tax consequences on paper.1Office of the Law Revision Counsel. 26 U.S.C. 704 – Partners Distributive Share Agreements creating special allocations should include capital account maintenance provisions and follow the IRS safe harbor, or the IRS can reallocate income based on each member’s actual economic interest.
Capital Call Defaults
Many operating agreements let the LLC demand additional capital from members after formation. The critical question is what happens when a member doesn’t pay. If the agreement is silent, the non-contributing member may keep their full ownership interest. The remaining members might have a breach-of-contract claim, but a court won’t rewrite the agreement to reduce the defaulter’s stake.
Well-drafted agreements specify the consequences upfront. Dilution reduces the defaulting member’s ownership percentage proportionally while contributing members’ percentages rise. Interest charges let the unpaid amount accrue at a specified rate until paid. Loss of voting rights suspends the defaulter’s vote until the shortfall is cured. A forced buyout gives non-defaulting members the right to purchase the defaulter’s interest at a discount. The more specific these provisions are, the less room a defaulting member has to argue the penalty is unenforceable. Vague language like “appropriate remedies” invites litigation.
Tax Distributions
Because most multi-member LLCs are taxed as partnerships, members owe income tax on their share of the LLC’s profits whether or not they actually receive any cash. That’s the phantom income problem: tax due on money still sitting in the company’s account. A tax distribution provision requires the LLC to distribute at least enough cash each year for every member to cover their estimated tax bill on the LLC’s income. Without one, a controlling member or manager can retain all profits in the business while minority members scramble to pay taxes on income they never saw.
Tax Classification and IRS Elections
An LLC’s federal tax treatment isn’t automatic in the way most people assume. A single-member LLC defaults to disregarded entity treatment (a sole proprietorship for tax purposes), and a multi-member LLC defaults to partnership taxation. Either type can elect to be taxed as a C-corporation by filing IRS Form 8832, and a qualifying LLC can then elect S-corporation treatment by filing Form 1120-S.2Internal Revenue Service. LLC Filing as a Corporation or Partnership The agreement should document which election the members chose and require member approval before anyone changes it.
For LLCs taxed as partnerships, the agreement should also designate a partnership representative. Under the IRS centralized audit rules, the partnership representative has sole authority to act on behalf of the LLC during a tax audit, including settling disputes and agreeing to adjustments that bind all members.3Internal Revenue Service. Designate or Change a Partnership Representative The representative doesn’t have to be a member; it can be any person or entity with substantial presence in the United States. Given the power the role carries, the agreement should specify who serves, how they’re replaced, and whether they must consult with or get approval from other members before making major decisions during an audit.
Ownership Transfer Provisions
Transfer restrictions are where operating agreements earn their keep. Without them, a member could sell their interest to anyone and you’d suddenly be in business with a stranger. Most agreements require advance approval from the manager or a specified percentage of members before any transfer.
Right of First Refusal
A right of first refusal gives existing members the chance to buy a departing member’s interest before it’s offered to outsiders. The typical process: the selling member gets a third-party offer, notifies the other members, and those members have a set number of days (often 30 to 60) to match. If they match, the interest stays inside the existing group. If they don’t, the seller can proceed with the outside buyer on the same terms. Nail down the notice period, matching deadline, and what happens if multiple members want to buy.
Drag-Along and Tag-Along Rights
These provisions matter most when majority and minority members have different exit timelines. Drag-along rights let a supermajority (typically 66% to 75% of ownership) force the remaining members to sell their interests as part of a complete sale of the business. Without them, a minority member can block a sale the majority wants to pursue. The trade-off is that dragged-along members must receive the same price and terms as everyone else.
Tag-along rights work in the opposite direction. If a majority member finds a buyer for their stake, minority members can insist on selling their interests in the same transaction on the same terms. This prevents a scenario where the majority owner cashes out and leaves minority members stuck with a new controlling owner they didn’t choose.
Involuntary Transfers
Certain life events can force a transfer of membership interests outside anyone’s control. A member’s death, bankruptcy, divorce, or incapacity can all put their LLC interest in the hands of heirs, creditors, or a bankruptcy trustee. Buy-sell provisions address these situations by giving the LLC or remaining members the right (and sometimes the obligation) to purchase the departing member’s interest at a predetermined price or through a specified valuation method. Common valuation approaches include book value, a multiple of earnings, an independent appraisal, or a formula the members agree to in advance. Spelling out the method prevents the kind of dispute that can paralyze a company for years.
Deadlock Resolution
Two-member LLCs with 50/50 ownership are especially vulnerable to deadlock, where neither member has enough votes to approve a decision. The agreement should include a deadlock-breaking mechanism, and several creative approaches exist beyond going to court.
One common approach is the “Russian roulette” or “shotgun” buy-sell provision. One member names a price at which they would buy the other member’s interest or sell their own. The receiving member then chooses whether to be the buyer or the seller at that price. Because the initiating member doesn’t know which side of the deal they’ll end up on, they’re incentivized to name a fair price. It’s an elegant solution to the valuation problem, though it inherently favors the member with more cash on hand.
Other mechanisms include bringing in a neutral third-party tie-breaker, requiring mediation within a set timeframe, or triggering dissolution if the deadlock persists beyond a specified period. The best approach depends on the relationship between the members and the nature of the business. What matters most is having something in writing before the deadlock happens.
Indemnification and Liability Protection
Limited liability is the headline feature of the LLC form, but it isn’t self-executing. The agreement should include indemnification provisions requiring the LLC to cover legal expenses, settlements, and judgments for members and managers who get sued over actions they took in good faith on behalf of the company. Most indemnification clauses draw a line at gross negligence and intentional misconduct, meaning you’re on your own if you defrauded someone or acted recklessly.
The agreement should also reinforce the separation between personal and business assets. Courts can disregard the LLC’s liability protection (often called piercing the veil) when members treat the company as their personal piggy bank. Factors that make piercing more likely include commingling personal and business funds, failing to maintain separate books and records, undercapitalizing the company so it can’t meet foreseeable obligations, and using the LLC to commit fraud. An agreement requiring separate bank accounts, adequate capitalization, and proper record-keeping isn’t just good governance; it’s evidence that the LLC is a real entity, not a shell.
Confidentiality and Non-Compete Clauses
Confidentiality
Confidentiality provisions require members to protect the LLC’s sensitive information, including trade secrets, client lists, financial data, and proprietary processes, both during and after their involvement with the company. If a member or former member misappropriates trade secrets, the federal Defend Trade Secrets Act provides civil remedies including injunctive relief, actual damages, and exemplary damages up to double the actual loss if the misappropriation was willful.4Office of the Law Revision Counsel. 18 U.S.C. 1836 – Civil Proceedings Most states also have their own trade secret laws modeled on the Uniform Trade Secrets Act. The agreement should specify how long confidentiality obligations last after a member exits and what the penalties are for violations.
Non-Compete Restrictions
Non-compete clauses restrict members from operating or investing in competing businesses during their membership and for a defined period afterward. Enforceability varies dramatically by state. A handful of states, including California, Minnesota, Oklahoma, North Dakota, and Montana, ban non-compete agreements almost entirely. Most other states enforce them only if they’re reasonable in duration, geographic scope, and the business interest they protect. An overly broad non-compete risks being thrown out entirely.
Some states apply a “blue pencil” doctrine, where a court can strike or narrow the unreasonable portions of a non-compete rather than voiding the whole clause. In stricter blue-pencil states, the court can only cross out offending language; in more permissive ones, the court can rewrite the restriction to make it reasonable. Knowing your state’s approach matters when drafting these provisions, because an aggressive clause that works in a reformation state could be completely unenforceable in a strict blue-pencil state.
The FTC’s attempt to impose a nationwide ban on non-compete agreements was struck down by courts and officially removed from federal regulations in early 2026. Non-compete enforceability remains a state-by-state question.
Dispute Resolution
A dispute resolution clause keeps business disagreements out of public courtrooms and resolves them faster. Most agreements pick from a few methods. Mediation uses a neutral third party to help the members negotiate; the mediator doesn’t decide anything, just facilitates. It’s the least adversarial option and preserves working relationships better than anything else. Arbitration sends the dispute to a neutral arbitrator who issues a binding decision, faster and more private than litigation, but you generally can’t appeal the outcome even if the arbitrator gets it wrong. Escalation clauses require informal negotiation between the members for a set period before anyone can file for mediation or arbitration, on the theory that most disputes resolve themselves when people are forced to sit down and talk before lawyering up.
The agreement should also specify which state’s law governs disputes and where proceedings take place. Without a choice-of-law provision, members in different states could end up fighting about jurisdiction before they even get to the substance of their disagreement.
Dissolution and Continuation
Dissolution provisions establish when and how the LLC winds down. Common triggers include a unanimous vote of members, the expiration of a term set in the agreement, or the occurrence of a specified event like the loss of a key license. The agreement should lay out the steps for liquidating assets, paying creditors, and distributing remaining funds to members.
Continuation provisions matter just as much. When a member dies, is expelled, or otherwise dissociates from the LLC, many state statutes let the remaining members continue the business rather than dissolving it. Under the Revised Uniform LLC Act adopted in many states, a dissociated member becomes a transferee, meaning they keep their economic interest (the right to receive distributions) but lose all management and voting rights. The agreement should specify which events of dissociation trigger a mandatory buyout versus which ones simply convert the departing member to a passive economic interest holder. The buyout price and payment terms for dissociation events deserve as much attention as the dissolution process itself. An agreement that handles dissolution meticulously but ignores what happens when a single member leaves has a dangerous blind spot.
Amendment Procedures
The final custom provision worth including governs how the operating agreement itself can be changed. Without one, you’re left with your state’s default rule, which could be simple majority, supermajority, or unanimous depending on the jurisdiction.
Most well-drafted agreements require a supermajority or unanimous vote to amend, with higher thresholds for changes affecting fundamental rights like profit allocation, voting power, or transfer restrictions. Some provisions can be designated as non-amendable without the affected member’s consent, protecting minority members from having their deal rewritten out from under them. The amendment clause is easy to overlook during formation, but it’s the provision that determines how much power the majority has over every other provision in the document.