LLC Operating Agreement (2026)

An LLC operating agreement is the private contract among the members that governs how the LLC runs - ownership, voting, distributions, transfers, and dissolution. It is not filed with the state in Wyoming, New Mexico, Delaware, or Nevada.

The operating agreement is a contract among the members and between each member and the LLC. Wyoming codifies its primacy at WY Stat. § 17-29-110; Delaware uses the freedom-of-contract language at 6 Del. C. § 18-101(9) and § 18-1101(b). It controls ownership percentages, signing authority, profit and loss allocation, distribution timing, death and divorce transitions, member admission and exit, dissolution, and its own amendment. It does not control tax classification, state fees, or BOI reporting.

Source: state LLC statutes and bank CIP practice, verified July 2026.

Five states require an operating agreement by statute - California, Delaware, Maine, Missouri, and New York. Everywhere else it is not statutorily required, but every US bank demands one to open a business account, and every court expects one.

Source: state LLC statutes, verified July 2026.

Every US bank - Mercury, Relay, Bluevine, Wise, Chase, Bank of America, Wells Fargo - asks for the operating agreement during onboarding to confirm the responsible party and the signers. No operating agreement, no account. Every LLC dispute starts with "produce the operating agreement," and without one the court applies default state rules: equal voting, equal distributions, unanimous consent for major decisions, regardless of who put up the capital.

A single-member operating agreement runs 6 to 10 pages and centers on the liability shield and tax classification. A multi-member agreement runs 15 to 30 pages and adds the full governance layer: voting, waterfalls, and buy-sell.

Source: LLC drafting practice and Treas. Reg. § 301.7701-3, verified July 2026.

Single-member agreements exist mainly to prove formal separation - the alter-ego doctrine targets single-member LLCs specifically, and the agreement is the cleanest evidence the entity is distinct from its owner. Charging-order language is mandatory because Wyoming's single-member exclusivity at WY § 17-29-503(a) bites hardest when the agreement classifies the interest as personal property. A middle category - husband-wife LLCs in community-property states - files taxes as disregarded under Rev. Proc. 2002-69 but should carry multi-member governance for death and divorce transitions.

The operating agreement reinforces the charging-order statute with four standard clauses: membership as personal property, distribution discretion, spendthrift anti-assignment, and, for Series LLCs, per-series isolation. The statute does the heavy lifting; the clauses close the gaps.

Source: WY § 17-29-503(a), 6 Del. C. § 18-703, NRS 86.401, 6 Del. C. § 18-215(b), verified July 2026.

Sample distribution-discretion clause: "Distributions are made at the sole discretion of the Manager. No Member, assignee, or transferee has any right to demand a distribution. The Company may defer or withhold distributions indefinitely for any reason the Manager determines to serve the interests of the Company." Combined with the charging-order statute, this leaves a judgment creditor with a right to distributions that need never come. For the per-series isolation clause and its case law, see the Series LLC pillar.

Multi-member LLCs need explicit tiered voting, a stated distribution method, and an amendment threshold - or state defaults fill the gaps with equal votes and unanimous consent. Per-percentage voting and a defined waterfall are what founders almost always intend.

Source: multi-member LLC drafting practice, verified July 2026.

Distributions default to pro-rata. Real-estate and family-wealth LLCs layer in a waterfall that pays capital and a preferred return before any sponsor promote.

Amendments need a stated threshold or the state default applies - Delaware defaults to consent of all members under 6 Del. C. § 18-302(f). Best practice is tiered: routine changes by majority, substantive changes by 75%, and adverse changes to a class by that class's unanimous consent, all on 14 days' written notice. Track every change with a dated execution page and a maintained Schedule of Members.

Every multi-member LLC needs buy-sell triggers for four predictable events: death, disability, divorce, and voluntary exit. Without them, surviving members can end up co-owning the LLC with heirs, an ex-spouse, or a bankruptcy trustee.

Source: buy-sell drafting practice; Rev. Rul. 59-60 for valuation, verified July 2026.

The death trigger is frequently funded with cross-purchase life insurance, with proceeds earmarked for the redemption, and the valuation formula should track the Rev. Rul. 59-60 framework for transfer-tax purposes. Disability needs an unambiguous definition - standard practice is inability to perform customary duties, as determined by two physicians, for a continuous 180 days. A drag-along right obligates a minority to join a sale approved by 66% of interests, so a 10% holder cannot block a clean exit.

Courts set an operating agreement aside when it contradicts practice, was never updated, or never existed. Signed, current, internally consistent agreements matched by real conduct are rarely pierced. The bad-fact patterns are all fixable by routine document hygiene.

In Curci Investments, LLC v. Baldwin (Cal. Ct. App. 2017), a court reached through a single-member Delaware LLC where the owner ran personal expenses through the LLC account and the agreement was a generic template with no follow-through. In NetJets Aviation, Inc. v. LHC Communications, LLC (S.D.N.Y. 2009), the court declined to pierce where the agreement was specific and signed and the member produced meeting minutes and clean capital accounting. In Elf Atochem North America, Inc. v. Jaffari (Del. 1999), the Delaware Supreme Court enforced an operating agreement's arbitration clause against a party who accepted the membership interest subject to it - the foundational statement that anything written into a Delaware agreement is presumed enforceable.

• No operating agreement at all - the easiest alter-ego argument a creditor can make.
• Generic template mismatched to the structure - signals the document was never read or followed.
• Co-mingled funds - the agreement says distributions are formal; practice runs through personal checking.
• Bank's version differs from the litigation version - the version a third party relied on controls.
• Verbal amendments never written down - the written document controls, and the member relying on the handshake loses.

Source: LLC alter-ego and contract case law, verified July 2026.