what-is-an-operating-agreement
What Is an Operating Agreement and Do I Need One?
An operating agreement is a legal document that defines how your LLC is owned and operated — covering ownership percentages, how profits and losses are distributed, how decisions are made, and what happens when a member leaves. Every LLC should have one, even single-member LLCs, because it protects your liability protection and prevents disputes. ZenBusiness provides a customizable operating agreement with Pro and Premium plans.
What an Operating Agreement Covers
An operating agreement is your LLC's internal rulebook. It typically includes:
Ownership structure:
- Who owns the LLC and what percentage each member holds
- How ownership interests are transferred or sold
Management:
- Whether the LLC is member-managed (owners run the business) or manager-managed (a designated manager runs day-to-day operations)
- How voting works and what decisions require unanimous vs. majority agreement
Finances:
- How profits and losses are allocated among members
- When and how distributions are made
- How the LLC handles capital contributions from members
Member changes:
- What happens when a member wants to leave
- How new members can be admitted
- What happens to a member's interest if they die or become incapacitated
Dissolution:
- Under what circumstances the LLC can be dissolved
- How assets are distributed if the LLC winds down
Why You Need One
Most states don't require operating agreements for LLCs — but that doesn't mean you should skip it. Here's why every LLC needs one:
It protects your liability protection. One of the ways courts "pierce the corporate veil" (disregard your LLC's liability protection) is by finding that your LLC operated like a sole proprietorship with no formal structure. An operating agreement is evidence that you treat your business as a real, distinct entity.
Banks require it. Many banks, lenders, and credit card issuers ask to see your operating agreement when you open a business account or apply for financing.
It prevents disputes. Without an operating agreement, member disputes are governed by your state's default LLC laws — which may not reflect what you and your co-owners actually agreed to. An operating agreement documents your actual intentions.
It covers you when something unexpected happens. What happens if a co-owner wants out? What if one of you passes away? Your operating agreement defines the answer — without it, state law fills the gaps in ways you may not want.
Single-Member LLCs Still Need One
If you're the sole owner, an operating agreement might seem unnecessary — there's no one else to disagree with. But:
- It reinforces the separation between you and your business (protecting your personal liability shield)
- Many banks require it even for single-member LLCs
- It documents your intent at formation, which matters if your business is ever challenged legally
Getting Your Operating Agreement From ZenBusiness
ZenBusiness provides a customizable operating agreement with Pro and Premium formation plans. If you're on a Starter plan, you can add an operating agreement from your dashboard under My Services → Add Services.
Your operating agreement is stored in your dashboard under Documents after it's generated.
Frequently Asked Questions
Is an operating agreement the same as articles of organization?
No — these are two different documents. Articles of Organization is the official state filing that legally creates your LLC. Your operating agreement is an internal document that governs how your LLC operates; it's typically not filed with the state.
Can I create my own operating agreement?
Yes — you can draft one yourself or use a template. However, since this document governs ownership and dispute resolution, having an attorney review it is recommended for multi-member LLCs or any situation with complex ownership arrangements.
What if my LLC operates without an operating agreement?
Your LLC is still legally valid — the state doesn't require one to maintain your registration. But state default laws govern your LLC in the absence of an agreement. Those default rules may not match your actual intentions, especially for things like profit distribution, decision-making authority, and what happens when a member leaves.
I need to update my operating agreement. How do I do that?
An operating agreement is an internal document — you update it by drafting an amendment and having all members sign it. Unlike state filings, you don't need to submit it anywhere. However, if the changes also affect your state registration (like a membership change or name change), you may also need to file a state amendment.