An 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, called "members". 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 operating agreement is mandatory as per laws in only three states: California, Missouri, and New York. LLCs operating without an operating agreement are governed by the states default rules contained in the relevant statute and developed through state court decisions. An operating agreement is similar in function to corporate by-laws, or analogous to a partnership agreement in multi-member LLCs. 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 and thus necessary so that the owner has documentation to prove that he or she is indeed separate from the entity itself. An LLC operating agreement identifies the company, states its ownership, defines member duties, and lays out other structural features of the business. It usually includes basic information about the LLC and its owners (known as members), the company’s elected tax treatment, and guidelines for how certain key procedures will be handled. Operating agreements function as a legal contract between or among members of a multimember LLC, though even single-member LLCs can benefit from one, too. An operating agreement is important for the following reasons:

• To protect the business 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.
• To protect your 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 agreemen...