An operating agreement is the private contract between the owners of an LLC that sets out who owns what share, how profits are split, how decisions are made and what happens if someone leaves. It isn't filed with the state, but it's the document that decides most disputes, and single-member LLCs benefit from one too.
I've read the Delaware LLC Act, California's Secretary of State guidance and the SBA's business structures guide in October 2026 for this. Delaware's law has a surprising definition that changes how you should think about the document, so I'll start there.
The definition most owners have never seen
Delaware's LLC Act defines a limited liability company agreement as any agreement, whether called a limited liability company agreement, an operating agreement or anything else, that's written, oral or implied, between the members about the company's affairs and how it runs its business. The same section says the LLC itself doesn't need to sign it to be bound, and that an agreement with only one member isn't unenforceable because only one person is a party to it.
Here's why that matters. If you don't write an agreement, you may still have one, made up of emails, conversations and how you've behaved. That's a much worse position than a clear written document, because nobody can prove what was agreed.
Is it filed with the state?
No. California's Secretary of State says bylaws and operating agreements, and any amendments, are kept by the business and aren't filed with the Secretary of State. Anyone wanting a copy has to ask the business. That's the big difference from the articles of organization, which are public. If you haven't formed the LLC yet, my guide to starting an LLC covers the filing.
What to put in an operating agreement
- Members and ownership: who the members are and what percentage each owns.
- Capital: what each member put in, and whether anyone has to put in more.
- Profits and losses: how they're split and when distributions are paid.
- Management: whether members run it or appointed managers do, and who can sign contracts.
- Voting: which decisions need a simple majority and which need everyone.
- New members: how someone joins and what they pay.
- Leaving: buy-out terms if a member wants out, dies or becomes unable to work.
- Transfers: whether members can sell their share to an outsider.
- Dissolution: how the LLC is wound up and assets shared out.
- Disputes: mediation or arbitration before anyone goes to court.
The transfer clause that keeps the LLC alive
The SBA makes a point most owners miss. LLCs can have a limited life in many states: when a member joins or leaves, some states may require the LLC to be dissolved and re-formed with the new membership, unless there's already an agreement in place for buying, selling and transferring ownership. So the buy-sell and transfer section isn't paperwork for a far-off day. It's the clause that lets the business carry on when the people change.
Single-member LLCs
If you're the only member, it's tempting to skip it. I wouldn't. Delaware's law expressly recognises a one-member agreement, and a written document shows the LLC is run as a separate business rather than an extension of you. That separation is the point of an LLC's liability protection. It also lets you name who takes over if you can't run the business, which nothing else in your filings does.
| Question | Without a written agreement | With one |
|---|---|---|
| Who decides if members disagree? | State default rules | Your agreed voting rules |
| What happens if a member leaves? | Possible dissolution in some states | Agreed buy-out and transfer terms |
| How are profits split? | State default rules | Your agreed percentages |
| Can you prove what was agreed? | Hard | Yes |
When to sign it
Delaware's law says an LLC agreement can be entered into before, after or at the same time as the filing of the certificate of formation, and can be made effective from the filing date. In practice, sign it as soon as the LLC is formed, before any cash changes hands. A bank, an investor or a new partner may ask to see it, and you'll want it ready.
How it fits with tax
The SBA describes the tax side simply: an LLC's profits and losses can pass through to the members' personal income without facing corporate taxes, but members are considered self-employed and pay self-employment tax towards Medicare and Social Security. The operating agreement doesn't change that on its own, but its profit split and distribution sections decide how much of the income lands on each member's return, so keep them in step with your tax set-up. My guide to LLC tax benefits covers the options, and LLC vs sole proprietorship explains when the switch is worth it.
My verdict
An operating agreement is the most useful document an LLC owner never has to file. Write it down, even if you're on your own, because Delaware's law shows that an unwritten one can exist anyway and it won't say what you meant. Focus on ownership, decisions, exits and transfers. Most fights between business partners start in one of those four areas.
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Frequently asked questions
What is an operating agreement?
It's the private agreement between an LLC's members setting out ownership, profit splits, management, voting and what happens when members join or leave.
Is an LLC operating agreement filed with the state?
No. California's Secretary of State, for example, says operating agreements are kept by the business and not filed.
Does a single-member LLC need an operating agreement?
It's strongly worth having. Delaware's law expressly recognises one-member agreements, and it helps show the LLC is separate from you.
Can an operating agreement be oral?
Under Delaware's definition, an LLC agreement can be written, oral or implied, which is why a clear written one is safer.
When should I sign an operating agreement?
Delaware allows it before, at or after filing the certificate of formation. Sign it as soon as the LLC is formed.
Do I need a lawyer to write an operating agreement?
Not by law, but for a multi-member LLC a lawyer's review of the buy-out and transfer sections is worth it.
What happens to an LLC when a member leaves?
The SBA notes some states may require dissolution and re-formation unless an agreement already covers buying, selling and transferring ownership.
