Operating agreement.
In plain English
An operating agreement is the private rulebook for an LLC. It spells out who owns what percentage, how decisions are made, how profits and losses are divided, what happens when an owner leaves or dies, and how the business can be dissolved. Most states do not require one, but going without it means state default rules govern your LLC, which may not match what the owners intended. For a single-owner LLC it also helps show the business is a separate entity, reinforcing the liability shield. It is an internal document, not filed with the state.
01Why it matters
The operating agreement decides how an LLC is run and how disputes are settled, so having one prevents the state's default rules from overriding what the owners actually wanted.
02The math, step by step
Two owners set an operating agreement giving one 60 percent and the other 40 percent of profits, with a buyout process if either leaves. Without it, state default rules might split everything 50-50 regardless of their intent.
03What this is NOT
An operating agreement is NOT the state filing that creates the LLC. Articles of organization form the entity with the state; the operating agreement is the internal contract among the owners.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice