The Value of Adopting a Custom Operating Agreement

Even though few states (including Delaware) require a written operating agreement for a limited liability company, it is a good business practice to adopt one to avoid being subject to the state’s default (statutory) LLC rules. An operating agreement is a customized document that sets the groundwork for how the business will operate. Thus, the members should not rely on ready-made templates that do not address the realities and needs of their business.

Since LLC registrations include very few details about the business other than its name and address, an operating agreement is a primary document that sets forth members’ rights and responsibilities and their ownership interests in the entity. It helps members navigate issues relating to voting power, profit-sharing, management, and transfer of ownership. An operating agreement is not a part of any public record and members can amend it as circumstances change and the needs of the business evolve.