What is an LLC operating agreement and do I need one?

An LLC operating agreement is a legal document that defines the ownership structure, member responsibilities, profit distribution rules, and operational procedures of your LLC. While only 5 states legally require one (California, Delaware, Maine, Missouri, New York), every LLC should have an operating agreement because it protects your limited liability status and prevents disputes.

Without an operating agreement, your LLC defaults to your state's LLC Act provisions, which may not align with your intentions. Key clauses to include: member ownership percentages, capital contribution requirements, profit and loss allocation, management structure (member-managed vs. manager-managed), voting rights, transfer restrictions, dissolution procedures, and buyout provisions. For single-member LLCs, the operating agreement primarily serves to demonstrate that the LLC is a separate entity from the owner — critical for maintaining the liability shield if challenged in court.