Operating Agreements: What They Are and Why You Need One

If you’re starting an LLC, there’s one document that can make or break how your business runs—your Operating Agreement.

It’s not just a formality. It’s a foundational contract that defines how your business operates, how decisions are made, and how ownership is structured. And while some states don’t legally require one, every business needs one.

What Is an Operating Agreement?

An Operating Agreement is a legal document that outlines the ownership structure, management procedures, member responsibilities, and operational rules of your limited liability company (LLC).

Think of it as your company’s internal rulebook—covering everything from profit sharing to how to handle disputes or changes in ownership.

Key components typically include:

• Member names and ownership percentages
• Roles, rights, and responsibilities of members and managers
• Voting rights and decision-making procedures
• Rules for meetings and amendments
• Profit and loss distribution
• What happens if someone leaves, dies, or wants to sell
  
  

While some single-member LLCs skip this step, that’s often a costly mistake. Without a formal Operating Agreement in place, your business will default to your state’s generic rules—rules that may not align with your goals or protect your business the way you think they do.

Is an Operating Agreement Required?

It depends on your state—but even when it’s not required, it’s still essential.

States that require LLCs to have an Operating Agreement include:

• California
• New York
• Missouri
• Maine
• Delaware (for some types)
  
  

But even in states that don’t mandate it, you may still need to show one:

• To open a business bank account
• To secure funding or investment
• To resolve disputes among members
• To prove you’re operating as a legitimate business entity separate from your personal finances
  
  

Without one, your LLC’s liability protection can be at risk.

Why Every LLC Needs an Operating Agreement

Whether you’re a solo founder or launching with multiple partners, an Operating Agreement gives you clarity, control, and legal protection.

Here’s why it matters:

1. It Protects Your Limited Liability Status

Courts may “pierce the corporate veil” if you don’t have proper documentation separating you from your business. An Operating Agreement is a clear sign you’re running a legitimate company—not just a side hustle.

2. It Prevents Misunderstandings

Clear rules help avoid future disputes. From how profits are split to what happens when someone leaves the company, having these decisions in writing is critical.

3. It Customizes Your Business Rules

State default rules are one-size-fits-all. Your Operating Agreement lets you tailor your business operations to your needs—from voting rights to management structure.

4. It Supports Business Continuity

Want to sell, retire, or bring on a new member someday? A strong Operating Agreement includes a plan for the future—without disrupting operations or causing conflict.

5. It Builds Professional Credibility

Banks, investors, and vendors often ask for your Operating Agreement. Having one that’s professionally prepared signals that you take your business seriously.

Common Mistakes to Avoid

If you’ve never created an Operating Agreement before, it’s easy to get it wrong. Some of the most common missteps include:

• Using a generic template that doesn’t match your state’s laws
• Failing to include dissolution terms or transfer rules
• Leaving out voting rights or management structure
• Not having all members sign the agreement
• Never updating it as your business evolves
  
  

Pro Tip: Use BizUpUSA’s Operating Agreement Service to get a fully customized agreement built to match your business structure, state regulations, and future plans.

What’s Included in the BizUpUSA Operating Agreement Service

Most “free” templates leave you legally exposed. Our service gives you the peace of mind of having a complete, legally sound Operating Agreement that matches your formation and business needs.

With BizUpUSA, your Operating Agreement is included with our Growth and Complete Plans. Or add one to your plan at a later time if you purchase the Starter Plan.

Our Operating Agreement service includes:

• A comprehensive, state-compliant document
• Clauses tailored to your ownership structure (single or multi-member)
• Legal review options (in select packages)
• Fast turnaround with clear next steps
  
  

Ready to add your Operating Agreement? Visit our Operating Agreement page to get started.

How to Create an Operating Agreement in 4 Simple Steps

Here’s how it works when you use BizUpUSA:

Step 1: Answer a Few Questions

We’ll ask about your LLC structure, number of members, management preferences, and any special clauses you want to include.

Step 2: Generate a Compliant Agreement

We’ll create a complete document tailored to your state and your business goals.

You’ll receive a digital version to review with your members and sign electronically or in person.

Step 3: Store It Safely

A signed copy is saved in your BizUpUSA dashboard. You can share it with your bank or attorney if needed. 

Put the Right Protections in Place from Day One

An Operating Agreement isn’t just paperwork—it’s protection. It protects your business from legal disputes, internal confusion, and personal liability.

If you’re forming an LLC or already have one, getting your Operating Agreement in place is one of the smartest legal moves you can make.

Get yours done right with BizUpUSA.

Our Operating Agreement service is fast, compliant, and tailored to your unique structure—so you can move forward with confidence.

Explore LLC Plans that include your Operating Agreement 

Or, if you just need to add it to an existing plan, get it here