An operating agreement is a key document used by limited liability companies (LLCs) to outline the management structure and operating procedures of the business. This agreement serves as a blueprint for how the LLC will be run and helps prevent misunderstandings among members.

Characteristics
– Management Structure: Specifies whether the LLC will be member-managed or manager-managed.
– Member Responsibilities: Details the roles and responsibilities of each member, including decision-making authority.
– Profit Distribution: Outlines how profits and losses will be allocated among members.
– Voting Rights: Defines the voting process for major decisions, including what constitutes a quorum.
– Transfer of Ownership: Establishes rules for transferring ownership interests, including buy-sell agreements.
– Dispute Resolution: Provides procedures for resolving disputes among members.

Examples
– An LLC with three members may have an operating agreement that states each member has equal voting rights and profits will be distributed based on their initial capital contributions.
– A single-member LLC may have a simplified operating agreement that outlines the member’s authority to make all decisions without needing to consult anyone else.