An LLC operating agreement is a legal document used by limited liability companies (LLCs) to outline the business financial and functional decisions including rules, regulations, and provisions. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners. Once the document is signed by the members of the limited liability company, it acts as an official contract binding them to its terms.

An LLC operating agreement is not required by most states, but it is highly recommended for multi-member LLCs because it structures an LLCs finances and organization, and provides rules and regulations for smooth operation. In single-member LLCs, an operating agreement is a declaration of the structure that the member has chosen for the company and sometimes used to prove in court that the LLC structure is separate from that of the individual owner.

An LLC operating agreement is similar in function to corporate by-laws or analogous to a partnership agreement in multi-member LLCs. It establishes guidelines for a limited liability company in the same way that bylaws govern the operation of a corporation. The operating agreement usually includes percentage of interests, allocation of profits and losses, members rights and responsibilities, and other provisions.

An LLC operating agreement is important for several reasons, including:

• Protection of limited liability status: Operating agreements give members protection from personal liability to the LLC. Without this specific formality, your LLC can closely resemble a sole proprietorship or partnership, jeopardizing your personal liability.

• Protection of agreement in the eyes of your state: State default rules govern LLCs without an official operating agreement. This means that each state outlines default rules that apply to businesses that do not sign operating agreements. Because the state default rules are so general, it is not advisable to rely on a governing body state to manage your agreement.

• Establishment of legal boundary between the LLC and the owner: An operating agreement establishes a legal boundary between the LLC and the owner, so that the owner is not held accountable for the LLCs debts or liabilities. Otherwise, creditors to the LLC may pursue the owners personal assets.

• Clarity in operations and management: An operating agreement sets forth the path for the business to follow and brings in more clarity in operations and management.

• Future-proofing the company: An operating agreement allows you to "future-proof" your company. When the law changes, your LLC may find itself operating under rules that the members did not intend. An operating agreement can help avoid this situation[[5]](https://www.wolterskluwer.com/en/ex...