How to File an Operating Agreement

Are you planning on starting a limited liability company (LLC)? One of the most important legal documents you'll need is an operating agreement. If you're wondering what that is, it's a legal contract that outlines the rules, operational guidelines, and legal provisions of a company. 

You can easily find an operating agreement template online that will guide you in the drafting and writing of your agreement. Before you get started on one, however, it's better to understand why you need it as well as how and where to file an operating agreement. 

Why Do You Need an LLC Operating Agreement?

An operating agreement is essential because it differentiates LLCs from sole proprietorships. It also protects a business member from personal liability to the LLC and governs a business' internal operations.

In the United States, five states - California, New York, Delaware, Maine, and Missouri - require LLCs to have written or oral operating agreements. Unfortunately, most states don't explain much about what needs to be included in the contract and are usually lax about it. Other states don't even require LLCs to create an operating agreement.

This results in most LLCs skipping the process of writing and filing an operating agreement. However, we strongly recommend that you have a written operating agreement. It not only protects your personal assets from your business assets but also serves as a record of the agreements you have between yourself and the company's other owners. 

This helps avoid miscommunication and misunderstandings in the future. It also helps you prove the validity of your LLC in the eyes of the state.

Moreover, an operating agreement defines how ownership, profits, and losses are distributed among the owners.

Drafting an Operating Agreement for an LLC

Now that you know why you need an operating agreement for your LLC, let's take a look at what you need to include when drafting one. Usually, the owners of an LLC draft an operating agreement as soon as they form a company. They can also make amendments to the agreement in the future whenever needed.

This essential legal document generally includes the following details:

• Ownership percentages of the members

• The rights and responsibilities of the members

• The powers and responsibilities of members and managers

• Distribution of the company's profits and losses

• How and when to hold meetings

• Provisions and rules for the transfer of interests

Filing an Operating Agreement for an LLC 

Once you create an operating agreement for your LLC, you and the other members of the company must sign it immediately while at the same place if possible. You'll then need to get it notarized to make it binding. Doing so will prevent the company's members from refuting the agreement's provisions in the future.

Since most US states don't require LLCs to file operating agreements, you won't need to file one with the Secretary of State or any other state agency. However, you should keep the written and signed agreement with other important documents of your LLC for documentation and the other reasons mentioned in this article.

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