What is an Operating Agreement?

An operating agreement lays out the structure, authority, and ownership of a limited liability company.  An operating agreement is only required in some states (i.e. New York), but is strongly recommended for all LLC's regardless of state of formation.  This is because an LLC, when formed has no structure, with only the name of the LLC, address & name of registered agent, the name and address of the organizer, and in most states, the owners (members).  However, without an operating agreement, there is nothing to determine such issues as:

  • Ownership Percentage
  • Cost and type of compensation to acquire ownership
  • Authority in the LLC
  • Rights of current and future members
  • And so many other issues

An operating agreement is not filed with any state, but is instead kept with the company's company records.


Proof of ownership

To provide proof of ownership for a multi-member LLC, since there should only be one original operating agreement, often members in an LLC are given Member Certificates (kind of like stock certificates but for LLCs).   Each member certificate specifices the percentage of ownership or number of units in relation to a total number of authorized units (like shares of stock).