The short version: an operating agreement is the rulebook your LLC runs by, who owns what, who can decide what, what happens when someone leaves or dies, and how the money moves. Most states do not legally require one, but every well-run LLC has one. The default state rules that apply when you do not are almost never what you actually want.
Here is what your operating agreement should cover, and what most templates skip.
Ownership and capital
Start with the ledger. Who owns what percentage, and what did each person put in to get there? Cash, equipment, intellectual property, and sweat all count, but they need to be valued and recorded. If two founders each contributed $25,000 but one of them also assigned a patent worth $100,000, the membership percentages should reflect that, not a 50/50 split that ignores the patent.
Also spell out whether the LLC can ever ask for more capital. Capital calls are one of the most common sources of LLC disputes. Either commit to no further calls unless unanimous, or define exactly when calls can happen, how much notice is required, and what dilution looks like for members who do not kick in.
Management structure
LLCs come in two flavors: member-managed and manager-managed. Member-managed means every owner has a vote on day-to-day decisions. Manager-managed means you appoint one or more managers (who may or may not be members) and the rest of the owners are passive.
Most multi-member LLCs default to member-managed in the state filing. That is fine until two of your three owners disagree on whether to hire a new salesperson and the third is on vacation. Spell out who makes which kinds of decisions, what counts as a major decision requiring everyone is vote, and what counts as routine.
A workable split: any single expenditure over $10,000, any new debt, any sale of LLC assets, any new member, any change to the operating agreement itself, those require unanimous or supermajority approval. Everything else is one-member-one-vote.
Profit and loss allocations
Profits do not have to be split in proportion to ownership, though they usually are. If you want a different allocation, say, a member who put up cash gets priority distributions until they have recouped their investment, write it down. The IRS will respect the allocation if it has substantial economic effect, which is a tax-code phrase that essentially means the allocation has to track real economic reality, not just paper.
Also distinguish between profit allocations and distributions. An LLC can allocate profit to a member without distributing cash. That matters because the member pays tax on the allocation either way.
Transfer restrictions
Without restrictions, a member can sell or assign their interest to anyone. That is a problem when your other co-owners interest ends up with their ex-spouse in a divorce, or with a creditor in a bankruptcy. Standard protections include a right of first refusal (the LLC or other members can match any outside offer), a buy-sell trigger on death, divorce, or bankruptcy, and a flat ban on transfers without unanimous consent.
The buyout price is the other half of this. Decide upfront whether interests are valued at book value, at an appraised fair market value, or at some formula based on revenue. Putting the formula in the agreement now is much cheaper than fighting about it when someone is already trying to leave.
Deadlock and dissolution
Two-member LLCs and 50/50 splits are deadlock factories. Build in a tiebreaker before you need one. Common options: a neutral third party gets a casting vote, a shotgun clause lets either member offer to buy the other out at a price the offerer chooses (and the offeree picks whether to buy or sell at that price), or a mediated buyout at appraised value.
Also spell out what triggers dissolution, who handles the wind-down, and how remaining assets get distributed. Without this, you fall back to your state default LLC act, which generally drags everyone into court.
Tax elections and accounting
Note whether the LLC is taxed as a partnership (the default for multi-member LLCs), a disregarded entity (single-member default), or has elected S-corp or C-corp treatment. If you have elected anything, attach the IRS form. Note the fiscal year, the accounting method (cash or accrual), and who has check-signing authority.
What templates usually miss
Three common gaps in template operating agreements:
A non-compete or non-solicit clause covering departing members. If you have built a customer list together, you probably do not want a member to leave and immediately compete using it. State law on enforceability varies, but the clause is worth having where it is enforceable.
An IP assignment confirming the LLC owns anything members create on its behalf. This sounds obvious but is frequently missing, and when it is missing, the default is that the member owns it.
A dispute resolution clause that specifies mediation before arbitration before litigation, with a chosen forum. Without one, your dispute lands in whatever court has personal jurisdiction over both parties, which is often nobody first choice.
When to revisit
Re-read the operating agreement when you add a member, change ownership percentages, add a new business line, or have a falling-out with a co-owner. An operating agreement that has not been opened in five years is almost guaranteed to no longer reflect the business.
If you are forming an LLC for the first time and want help drafting one, LawSensai can match you with an attorney who handles entity formation in your state.