An LLC Operating Agreement is an important legal document that defines the individual roles, liabilities, and responsibilities of the members of a limited liability company (LLC). Its purpose is to prevent misunderstandings among the LLC members and ensure that their interests are protected in case of any disputes. This document outlines how the LLC is set up, managed, and how decisions are made, including how the profits and losses are divided among members.

An LLC Operating Agreement is a contract between the members of the LLC. Usually crafted by the members themselves, it is generally recommended that the assistance of a lawyer be sought to facilitate the crafting of the document. It should contain all the details of the LLC—its ownership and management structure, the members’ financial rights, the roles of each member, voting rules, dissolution procedures, and any other relevant rules or regulations. The language of the agreement should be tailored to the specific needs of the LLC and its members.

For LLCs in some states, an LLC Operating Agreement is required for formal formation and recognition as a limited liability company by state authorities. This is the case with California, Delaware, Arizona, and Pennsylvania. All LLCs should have one, even if it is not required in their state, as it sets out the foundations upon which the LLC is built.

LLC Operating Agreements can help protect the members in the concept of piercing the corporate veil. This is when a court will “lift the veil” and not respect the limited liability status of LLCs. An Operating Agreement can help show that the LLC is operating as a separate entity and that its members are not personally liable.

An LLC Operating Agreement is highly beneficial for the protection of all businesses—particularly those that have multiple members. It thoroughly outlines the structure and operations of the LLC and helps eliminate any potential legal disputes or issues between members.