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Operating Agreement

Definition - What does Operating Agreement mean?

An operating agreement is a legal document created in connection with the formation of a limited liability company (LLC). This document serves as a model for the management of the business, allocation of assets, and distribution of revenue. As such, it supersedes applicable state laws pertaining to the operation of the LLC.

Justipedia explains Operating Agreement

Because they are so important, most operating agreements are set forth in writing. Though they are less common, verbal operating agreements between members of an LLC are also acceptable.

In either case, the operating agreement usually determines how various aspects of the business are conducted. It will determine how new members are chosen and what happens if a member leaves. It also determines the methods for dissolution.

Unless otherwise stipulated in applicable state laws, the members of an LLC can choose what aspects of the business the agreement covers, and vote on any ensuing amendments.

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