What is an operating agreement?

An operating agreement is a legal document for an LLC or partnership that sets out who owns the business, how it is managed, how profits are shared, and what happens if a member leaves.

Do I need an operating agreement for my LLC?

Yes. Even if your state does not legally require one, an operating agreement protects you by putting all the rules in writing and preventing future disputes between members.

What is the difference between member-managed and manager-managed?

In a member-managed LLC, all owners take part in running the business. In a manager-managed LLC, one or more designated managers handle day-to-day decisions on behalf of the members.

What is a multi-member LLC?

A multi-member LLC is an LLC with two or more owners (called members). Each member has an ownership percentage and shares in profits and losses accordingly.

What should be covered in a partnership operating agreement?

It should cover each partner's capital contribution, ownership percentage, roles and responsibilities, how profits are shared, how decisions are made, and what happens if a partner wants to leave.

Can members of an LLC transfer their ownership to someone else?

Usually not without restrictions. Most operating agreements require other members to approve any transfer of ownership before it can happen.

What happens to an LLC if a member leaves or the business closes?

The operating agreement should set out the rules for both scenarios — how a departing member's share is valued and bought out, and how assets are distributed if the LLC is dissolved.

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