How to Fill Out an LLC Operating Agreement: Section by Section

To fill out an LLC operating agreement, work through it section by section and record the specific decisions your members have made about ownership, contributions, management, profit-sharing, transfers, and dissolution. The agreement is an internal contract, not a government filing, so there is no standard form to submit; you start from a template or an attorney-drafted document and populate every blank with terms that match your business. Precision matters, because any question the agreement leaves unanswered is answered by your state’s default LLC statute instead, and those defaults rarely match what the members actually intended.¹

A few common defaults show why the blanks matter. Many states split profits equally among members regardless of how much each one contributed. Many require unanimous consent to admit a new member. Many give every member authority to bind the company by signing contracts. If one member put in $200,000 and another put in $10,000, an equal profit split probably is not the deal they struck, and the only way to override the default is with written terms the members sign.

Company Information and Purpose

Enter the LLC’s full legal name exactly as it appears on the articles of organization, the state of formation, the formation date, and the principal office address. For the business purpose, most agreements use broad language such as “any lawful business activity” so you do not have to amend the agreement every time the company adds a product line. If the LLC was formed for a specific, limited purpose, such as holding a single piece of real estate, state that here. A narrow purpose can also act as a dissolution trigger when the purpose is fulfilled.

Members and Ownership Percentages

List every member’s full legal name and address. Next to each name, record the ownership percentage. Percentages usually flow from capital contributions, but they do not have to. Members can agree to any split they want, as long as the number written in this section matches what everyone actually agreed to, because ownership percentages often drive voting power, profit shares, and payouts on dissolution.

If you expect to bring in additional members later, describe the process for admitting them: what approvals are required and how existing percentages will be adjusted. Skip this and the state default applies, which in many jurisdictions requires unanimous consent from all existing members before anyone new can join.

Capital Contributions and Capital Accounts

Record what each member is putting into the business at formation. Contributions can be cash, property, or services. For anything other than cash, state the agreed fair market value so there is no argument later about what a piece of equipment or intellectual property was worth.

Specify whether members are obligated to make additional contributions in the future and what happens if someone fails to meet a capital call. Some agreements dilute the ownership percentage of a member who does not contribute; others treat the shortfall as a loan from the members who did.

For multi-member LLCs taxed as partnerships, address capital account maintenance. A capital account is a running ledger for each member that tracks contributions in, allocations of profit and loss, and distributions out. Most agreements state that capital accounts will be maintained consistently with Treasury Regulations under Section 704(b), the safe harbor the IRS uses to evaluate whether allocations have real economic substance.

Profit and Loss Allocations and Distributions

This section decides how the LLC’s income and losses are divided. The simplest arrangement allocates profits and losses in proportion to ownership percentage: a 60% owner takes 60% of the profit and bears 60% of the loss. The agreement can also use special allocations, where profits or losses are split differently from ownership. A member who contributes expertise instead of cash might take a larger share of profit for the first several years, for example.

Special allocations carry a tax complication. The IRS requires that partnership allocations either follow the members’ economic interests in the LLC or have what the tax code calls “substantial economic effect.”² In plain terms, you cannot steer losses toward whichever member gets the biggest tax break unless the allocation reflects a real economic outcome as well. If you plan to use anything other than straight pro-rata allocations, have a tax professional review this section before anyone signs.

Distributions are a separate topic. An allocation is a paper entry that determines who reports income on their tax return; a distribution is cash actually leaving the business and going to a member’s bank account. State whether distributions happen monthly, quarterly, annually, or at the manager’s discretion, and include a restriction preventing any distribution that would leave the LLC unable to pay its debts as they come due.

Management Structure

Every LLC is either member-managed or manager-managed. In a member-managed LLC, all owners take part in running the business and any member can generally bind the company. In a manager-managed LLC, one or more designated managers handle daily operations while the other members are passive investors who vote only on major decisions.¹

Pick the structure that matches how the business actually runs. If outside investors want no part of daily decisions, manager-managed is the obvious pick. If every member is working in the business, member-managed usually makes more sense. Then spell out the specific authority a manager or managing member has. Can they sign leases? Hire employees? Take on debt above a set dollar amount? The clearer this is, the fewer disputes come later. If the LLC is manager-managed, name the initial managers and describe how they are appointed, compensated, and removed.

Voting Rights and Decision-Making

Not every decision should require the same level of agreement. Build a tiered voting structure that lists which decisions fall into each category. Common tiers include:

Majority vote for routine matters such as hiring, entering contracts below a set dollar threshold, and approving the annual budget.
Supermajority vote (often two-thirds or three-quarters) for taking on significant debt, selling major assets, changing the business purpose, or admitting new members.
Unanimous consent for amending the operating agreement, dissolving the LLC, or any action that would change a member’s economic rights.

Say whether voting power follows ownership percentages or whether each member gets one vote regardless of stake. Say whether votes happen at formal meetings, by written consent, or both. If the LLC has two equal owners, include a deadlock-breaking mechanism such as mandatory mediation, binding arbitration, or a buy-sell provision that lets one owner buy the other out at a set price. A 50-50 deadlock can paralyze a business indefinitely if the agreement is silent.

Transfer Restrictions and Buy-Sell Provisions

This section controls what happens when a member wants to sell an interest and what happens when they cannot or do not want to remain involved. Most agreements restrict transfers so unwanted outsiders cannot become members. A right of first refusal is the standard tool: before any member sells to a third party, they must first offer the interest to the existing members on the same terms.

Beyond voluntary sales, add buy-sell provisions covering involuntary departures. Common triggering events include death, permanent disability, retirement, personal bankruptcy, and divorce. For each trigger, the agreement needs to answer three questions: is the buyout mandatory or optional, how is the purchase price set, and how is payment structured? Valuation methods range from a fixed price updated periodically, to a formula based on book value or a revenue multiple, to a formal independent appraisal. Payment terms can be a lump sum, installments over several years, or a combination.¹

Without clear buyout terms, a deceased member’s interest can pass to an heir with no knowledge of the business, and a divorcing member’s spouse can end up claiming a stake. Life insurance and disability insurance policies on the members can fund the buyout so the LLC does not have to drain operating cash to buy back a departing interest.

Fiduciary Duties and Indemnification

Members and managers owe fiduciary duties to the LLC and to each other. The two core duties are the duty of care, which requires acting with the diligence a reasonable person would use, and the duty of loyalty, which requires putting the company’s interests above personal gain. In practice, the duty of loyalty means a manager cannot divert a business opportunity for personal profit or use company assets for personal benefit without disclosure and approval from the other members.

Most state LLC statutes let the operating agreement modify these duties within limits. You can lower the standard of care, for example by limiting liability to intentional misconduct or knowing violations of law, and you can define specific situations where a conflict of interest is permitted. You generally cannot eliminate the duties entirely. State the applicable standard clearly so members know what conduct crosses the line.

The indemnification clause works alongside the fiduciary duty language. It specifies when the LLC will cover legal costs, judgments, or settlements incurred by a member or manager sued for actions taken on behalf of the company. A typical clause indemnifies members and managers for anything done in good faith and within the scope of their authority, and excludes protection for fraud, willful misconduct, or knowing violations of law. Without indemnification, capable people may hesitate to serve as managers because they would bear the full financial risk of any lawsuit arising from business decisions.

Dissolution Procedures

Define what triggers the end of the LLC and how the wind-down works. Common triggers include a vote of the members at the threshold the agreement sets, expiration of a fixed term, completion of the LLC’s stated purpose, bankruptcy of the LLC itself, or the departure of all members.

Once dissolution is triggered, the LLC stops taking on new business and starts winding up: collecting debts, liquidating assets, paying creditors, and distributing whatever remains to members according to ownership percentages or capital account balances. Lay out the order of priority for these payments and designate who runs the process. Many states also require the LLC to file articles of dissolution with the Secretary of State as a final step, but the operating agreement governs the internal process.

Amendment Procedures

Businesses change, so include a clear process for updating the agreement. At minimum, state the vote threshold required to amend, such as supermajority or unanimous consent. Many agreements add a protective rule: no amendment can reduce a member’s economic rights or change that member’s ownership percentage without the individual consent of the affected member, regardless of how the overall vote comes out.

Require all amendments to be in writing and signed by the necessary members. Oral modifications invite disputes. Keep every amendment attached to the original agreement so the full history sits in one place.

Tax Classification and Partnership Representative

By default, the IRS treats a single-member LLC as a disregarded entity taxed like a sole proprietorship, and a multi-member LLC as a partnership. Either can elect corporate taxation by filing Form 8832.³ State the LLC’s intended tax classification in the agreement so every member is working from the same understanding of how income will be reported.

Multi-member LLCs taxed as partnerships should also name a partnership representative. Under the centralized audit rules, the partnership representative has sole authority to act on the LLC’s behalf during an IRS audit, including the power to settle disputes and agree to adjustments that bind every member.⁴ Specify who holds the role, how a replacement is chosen, and whether the representative needs member approval before agreeing to audit adjustments. Without those guardrails, one person can agree to a tax liability that hits every member’s wallet.

If You Are the Only Member

A single-member LLC still benefits from a written operating agreement. It is the strongest evidence that the LLC is a separate entity from you personally, which matters if a court is asked to pierce the veil and hold you liable for company debts. The document is simpler than a multi-member version because there are no co-owner negotiations, but it should still cover the business purpose, management authority, capital contributions, distribution policy, and dissolution procedures. It can also name a successor manager or describe how your membership interest transfers to your heirs if you die or become incapacitated.

Signing, Storing, and What Comes Next

Once the document is finalized, every member signs and dates it. Signatures make the agreement a binding contract.¹ A witness or notary is not legally required in most jurisdictions, but adding one can head off future challenges to authenticity.

Store the signed original with your other formation documents, such as the articles of organization, EIN confirmation, and any amendments. Do not file the operating agreement with the Secretary of State or any other government agency; it is an internal record.¹ Give each member a signed copy.

If you have not yet obtained a federal Employer Identification Number, apply after the agreement is signed. The IRS requires that the LLC be officially formed with the state before you apply. Applications are free through the IRS website and the EIN is issued immediately during business hours. You will need the LLC’s legal name exactly as it appears on the state formation documents, the responsible party’s Social Security number, and the LLC’s physical address.⁵

1
U.S. Small Business Administration. Basic Information About Operating Agreements
2
Office of the Law Revision Counsel. 26 USC 704 – Partners Distributive Share
3
Internal Revenue Service. About Form 8832, Entity Classification Election
4
Internal Revenue Service. Designate or Change a Partnership Representative
5
Internal Revenue Service. Get an Employer Identification Number