What to Include in an LLC Operating AgreementA 25-clause checklist organised by priority

These 12 clauses form the foundation of any operating agreement. Without them, your document will not satisfy bank requirements, may not hold up in court, and leaves critical operations undefined. Every LLC, single or multi-member, should include all of these.

1. 01.LLC Name and Formation

   SingleMulti

   The exact legal name as filed with the state, state of formation, filing date, and Articles of Organization reference number. Must match your state filing exactly. Any mismatch can create legal issues with contracts and banking.

2. 02.Principal Office Address

   SingleMulti

   The primary business address where records are kept. Can be a home address, office, or registered agent address. Update the agreement if you move. Banks and courts use this to determine jurisdiction.

3. 03.Registered Agent

   SingleMulti

   The person or service designated to receive legal documents (lawsuits, subpoenas, government correspondence) on behalf of the LLC. Required by every state. Can be a member, an employee at the business address, or a commercial registered agent service ($50 to $300 per year).

4. 04.Business Purpose

   SingleMulti

   Defines what the LLC is authorised to do. A broad purpose clause ("any lawful business activity") provides maximum flexibility. A narrow clause limits scope but may reduce liability for activities outside the purpose. Most attorneys recommend a broad clause for small LLCs.

5. 05.Member Identification

   SingleMulti

   Full legal names, addresses, and membership interest percentages for all members. For entity members (trusts, other LLCs), include the entity name, state of formation, and EIN. The foundational section establishing who owns the LLC.

6. 06.Capital Contributions

   SingleMulti

   The initial investment by each member: cash amount, property description and fair market value, or services contributed. The IRS requires capital accounts for all LLCs. Document everything with receipts, appraisals, or service agreements as exhibits.

7. 07.Management Structure

   SingleMulti

   Member-managed (all members participate in decisions) or manager-managed (designated managers run operations). About 90% of small LLCs are member-managed. Determines who can sign contracts and bind the LLC. Your Articles of Organization must match this election.

8. 08.Profit and Loss Allocation

   SingleMulti

   How net income and losses are divided. Options: pro-rata by ownership (most common), equal splits, or special allocations. Must comply with IRS Section 704(b) substantial-economic-effect rules. Single-member LLCs allocate 100% to the sole member.

9. 09.Distribution Schedule

   SingleMulti

   How often and how cash distributions are made: monthly, quarterly, annually, or at the manager's discretion. Include a mandatory tax distribution provision so members can pay estimated taxes on K-1 income. The IRS taxes members on allocated income whether or not distributions are received.

10. 10.Banking and Financial Accounts

    SingleMulti

    Name the bank, authorise signatories, and establish transaction limits requiring additional approval. Specify that the LLC will maintain separate financial records. Commingling personal and business funds is the leading reason courts pierce the LLC veil.

11. 11.Dissolution Terms

    SingleMulti

    Events triggering dissolution: unanimous consent, court order, bankruptcy, or loss of all members. Winding-up order: pay creditors first, establish reserves for contingent liabilities, return capital contributions, distribute remaining assets pro-rata. File Articles of Dissolution with the state.

12. 12.Governing Law

    SingleMulti

    Specifies which state's laws govern the agreement. Always use the state of formation. If members are in different states, this prevents jurisdictional disputes. Include a clause selecting the county or judicial district for any legal proceedings.

These 10 clauses address governance, transitions, and dispute resolution. Multi-member LLCs should include all of them. Single-member LLCs should include the ones tagged “Single” (death/incapacity, tax elections, indemnification, amendment process).

1. 01.Voting Rights and Decision Thresholds

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   Define what percentage is needed for routine decisions (simple majority), significant decisions (supermajority of 67% to 75%), and fundamental changes (unanimous). Specify whether voting is per-capita (one vote per member) or proportional to ownership.

2. 02.Transfer Restrictions

   Multi

   Prohibit members from transferring their interest without consent of remaining members. Include right of first refusal so existing members can match any third-party offer. Specify whether transferees receive full membership rights or only economic interests.

3. 03.Buyout Provisions

   Multi

   Valuation method (independent appraisal, revenue multiple, or book value), payment terms (lump sum or instalments over 12 to 36 months), and trigger events (voluntary withdrawal, death, disability, involuntary removal). The average LLC buyout dispute costs $78,000 in legal fees without pre-agreed terms.

4. 04.Death and Incapacity

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   What happens to a member's interest upon death: mandatory buyout by remaining members, transfer to heir as full member, or conversion to economic interest only. Consider key-person life insurance to fund buyouts. Name an emergency manager for incapacity situations.

5. 05.New Member Admission

   Multi

   Process for adding members: required approval threshold (typically unanimous), minimum capital contribution, and how existing ownership percentages are diluted. Specify whether new members receive the same rights as original members or limited rights.

6. 06.Tax Elections

   SingleMulti

   How the LLC will be taxed: disregarded entity (single-member default), partnership (multi-member default), or S-Corporation (requires Form 2553). Specify who is responsible for tax filings, who selects the accountant, and the fiscal year end. Include a tax matters partner designation for multi-member LLCs.

7. 07.Indemnification

   SingleMulti

   The LLC agrees to indemnify members and managers against claims arising from good-faith performance of their duties. Protects individuals from personal liability when acting within their authority on behalf of the LLC. Standard in virtually all operating agreements.

8. 08.Amendment Process

   SingleMulti

   How the operating agreement can be changed: typically requires written consent of all members (or a specified supermajority). The amendment must identify changed sections, state new language, and be signed by all consenting members. Keep amendments with the original document.

9. 09.Dispute Resolution

   Multi

   Require mediation before litigation (resolves 70% to 80% of disputes at a fraction of court costs). If mediation fails, specify binding arbitration or court jurisdiction. Include who pays legal fees: each party bears their own, or the losing party pays. Name a mediation service (JAMS, AAA).

10. 10.Deadlock Resolution

    Multi

    Specific to 50/50 or equal-voting LLCs. Options: cooling-off period, neutral advisor with casting vote, mediation escalation, or shotgun buy-sell. Without this, a deadlocked LLC may require judicial dissolution, costing $50,000 to $150,000 in legal fees over 18 to 24 months.

These 13 clauses address specific business situations. Include them based on your LLC's industry, number of members, investor involvement, and risk profile. Each clause notes the context in which it is most relevant.

1. 01.Non-Compete Clause

   Multi

   Prevents departing members from competing with the LLC for a specified time (1 to 2 years) and geography (25 to 100 miles). Not enforceable in California, Minnesota, Oklahoma, or North Dakota. Courts in other states enforce reasonable restrictions. Always pair with a non-solicitation clause.

2. 02.Non-Solicitation Clause

   Multi

   Prevents departing members from soliciting the LLC's clients, employees, and vendors for 1 to 2 years. Enforceable in nearly every state, including California. More reliable than non-competes and protects the LLC's most valuable relationships.

3. 03.Confidentiality / NDA Provisions

   Multi

   Members agree not to disclose trade secrets, client lists, financial information, or proprietary business methods during and after membership. Survives withdrawal or removal. Standard duration: indefinite for trade secrets, 2 to 5 years for other confidential information.

4. 04.Member Compensation and Salaries

   Multi

   Whether members receive guaranteed payments (salaries) in addition to profit distributions. Common when some members work full-time and others are passive. Guaranteed payments are deductible by the LLC and taxable as ordinary income to the recipient. Specify amounts, payment frequency, and adjustment process.

5. 05.Meetings and Record-Keeping

   Multi

   Schedule for member meetings (annual minimum recommended), notice requirements (10 to 30 days), quorum requirements, and minutes documentation. While LLCs have fewer formality requirements than corporations, maintaining meeting records strengthens liability protection and helps defeat veil-piercing claims.

6. 06.Insurance Requirements

   SingleMulti

   Require the LLC to maintain general liability insurance, professional liability (E&O) insurance if applicable, workers' compensation, and key-person life insurance to fund buyout provisions. Specify minimum coverage amounts and name the LLC (not individual members) as the insured.

7. 07.Intellectual Property Assignment

   SingleMulti

   All IP created by members in connection with the LLC's business belongs to the LLC, not individual members. Critical for technology, creative, and consulting LLCs. Without this clause, departing members may claim ownership of work product, client deliverables, or proprietary tools they developed.

8. 08.Force Majeure

   SingleMulti

   Excuses performance obligations during events beyond members' control: natural disasters, pandemics, government orders, war, or supply chain disruptions. Became standard after COVID-19 disrupted thousands of LLCs whose operating agreements had no force majeure provision.

9. 09.Severability

   SingleMulti

   If any provision is found unenforceable by a court, the remaining provisions continue in full effect. Standard boilerplate but essential for protecting the overall agreement if a specific clause (like a non-compete) is struck down.

10. 10.Entire Agreement / Integration Clause

    SingleMulti

    States that the operating agreement is the complete agreement between members, superseding all prior oral and written agreements. Prevents members from claiming verbal side deals or earlier draft versions as binding. Standard in virtually all contracts.

11. 11.Drag-Along and Tag-Along Rights

    Multi

    Drag-along: majority owners can force minority owners to sell their interests in a company sale (protects buyers who want 100% ownership). Tag-along: minority owners can force inclusion in a sale initiated by majority owners at the same price per unit. Common in LLCs with outside investors.

12. 12.Anti-Dilution Protections

    Multi

    Protects existing members from ownership dilution when new members are admitted or additional capital rounds occur. Options: full ratchet (existing members maintain their percentage), weighted average (dilution based on valuation), or preemptive rights (existing members can invest pro-rata in new rounds).

13. 13.Fiduciary Duties Modification

    Multi

    Many state LLC acts allow operating agreements to modify or even eliminate certain fiduciary duties (duty of loyalty, duty of care). Delaware allows the broadest modifications. This is advanced territory, typically used in investment fund LLCs where managers need flexibility. Consult an attorney before modifying default fiduciary obligations.

Indicative clause counts by LLC type.