LLC Operating Agreement Template: What LegalZoom's Template Doesn't Include

Your LLC Is Legally Naked Without This Document

You filed your articles of organization. You got your EIN. You opened a business bank account. You feel official.

But if you don't have an operating agreement, your LLC is missing the single most important document for protecting your personal assets and defining how your business actually works.

An operating agreement is the internal rulebook for your LLC. It defines who owns what, who makes decisions, how profits get distributed, and what happens when things go wrong. Without one, your state's default LLC statute fills in the blanks -- and those defaults rarely match what you actually want.

Here's the problem with most operating agreement templates: they cover the basics and skip the clauses that matter when things get complicated. The provisions you need most are the ones that free templates leave out.

What an Operating Agreement Actually Covers

An LLC operating agreement addresses every aspect of how your company operates. The essential sections include:

Formation and Purpose

• LLC name, principal office address, registered agent
• Business purpose (broad enough to cover future activities)
• Duration of the LLC (perpetual or fixed term)

Members and Ownership

• Names of all members
• Ownership percentages
• Initial capital contributions (cash, property, services)
• Procedures for additional capital contributions

Management Structure

• Member-managed vs. manager-managed
• Specific authority granted to managers or managing members
• Day-to-day operational authority vs. major decisions
• Officer appointments (if applicable)

Financial Provisions

• Profit and loss allocation ratios
• Distribution timing and procedures
• Tax elections (partnership, S-corp, disregarded entity)
• Accounting methods and fiscal year

Voting and Decision-Making

• Matters requiring member vote
• Voting thresholds (majority, supermajority, unanimous)
• Meeting requirements and notice periods
• Proxy voting rules

Transfer and Exit

• Restrictions on transferring membership interests
• Right of first refusal procedures
• Buyout triggers and valuation methods
• Voluntary withdrawal procedures

Dissolution

• Events triggering dissolution
• Winding up procedures
• Asset distribution priority

Single-Member vs. Multi-Member: Different Documents

Single-Member LLC Operating Agreement

If you're the sole owner, you might wonder why you need an operating agreement at all. Three reasons:

Liability protection. Courts look at whether you treated the LLC as a separate entity. An operating agreement is evidence that you did. Without one, a plaintiff can argue your LLC is just your alter ego -- and reach your personal assets.

Bank and lender requirements. Many banks require an operating agreement to open a business account. Lenders and landlords may require one before signing contracts with your LLC.

State compliance. California, New York, Delaware, Maine, and Missouri explicitly require LLCs to adopt an operating agreement. Even oral agreements count in some states, but good luck proving what an oral agreement says in court.

A single-member operating agreement is straightforward. It documents:

• Your capital contribution
• That you have full management authority
• How the LLC will be taxed (typically as a disregarded entity)
• That the LLC is a separate entity from you personally
• Basic dissolution procedures

Multi-Member LLC Operating Agreement

This is where operating agreements earn their keep. When multiple people own a business together, everything that could go wrong eventually will -- and the operating agreement determines the outcome.

A multi-member agreement needs all of the above plus:

Capital contribution schedules. What each member contributes initially and obligations for future contributions. What happens if a member can't make a required contribution?

Profit and loss allocation. This doesn't have to match ownership percentages. Special allocations are common but must comply with IRS rules to be respected for tax purposes.

Management authority matrix. Who can sign contracts? Up to what dollar amount? What requires a vote? What requires unanimous consent?

Deadlock resolution. What happens when a 50/50 LLC can't agree? Without a tiebreaker mechanism, the LLC can be paralyzed.

Buy-sell provisions. What triggers a buyout? How is the membership interest valued? What are the payment terms? This section alone can run several pages.

Non-compete and confidentiality. Can members operate competing businesses? What information is confidential?

State-Specific Requirements You Can't Ignore

California

California explicitly requires every LLC to have an operating agreement, whether written or oral. Under the California Revised Uniform Limited Liability Company Act:

• Operating agreements may be written, oral, or implied -- but written is the only defensible option
• The agreement must be kept with other company records
• California community property laws can affect membership interests -- address this in the agreement
• If the LLC has California real property, special provisions apply to transfers
• California's $800 minimum franchise tax applies regardless of what the operating agreement says

New York

New York also requires LLCs to adopt a written operating agreement within 90 days of filing the articles of organization:

• Must be in writing (oral agreements are not sufficient in New York)
• Must be signed by all initial members
• Publication requirement: New York LLCs must publish notice in two newspapers for six consecutive weeks -- this is separate from but often referenced in the operating agreement
• The operating agreement should address New York's default rules for dissolution, which allow judicial dissolution if the managers or members are deadlocked

Texas

Texas does not require an operating agreement, but operating without one is risky:

• Without an agreement, the Texas Business Organizations Code (BOC) default rules apply
• Texas defaults to member-managed LLCs unless the certificate of formation says otherwise
• Texas allows "series LLCs" -- if you're using one, the operating agreement must establish each series
• The agreement should address Texas's community property implications for married members
• Texas has no state income tax, but the franchise tax margin calculation should be considered

Florida

Florida does not require an operating agreement, but Florida Statute 605.0105 recognizes them:

• Can be written, oral, or implied
• Florida's Revised Limited Liability Company Act gives significant deference to operating agreement provisions
• Florida's homestead exemption doesn't protect LLC interests -- the operating agreement should address creditor claims
• Charging order is the exclusive remedy for a judgment creditor in Florida (strong LLC protection), but only if the LLC is properly documented
• Florida allows single-member charging order protection under the 2014 amendments

Delaware

Delaware is the most LLC-friendly state:

• Maximum freedom of contract in operating agreements
• Delaware LLC Act explicitly allows the operating agreement to eliminate fiduciary duties (unique among states)
• No requirement for annual meetings
• The operating agreement can override almost every default provision of the Delaware LLC Act
• Delaware Chancery Court provides specialized business dispute resolution

What Free Templates Miss

Here's where LegalZoom's $99 template, Rocket Lawyer's subscriber document, and the free PDFs from legal form sites fall short. These templates cover the minimum legal requirements but skip the provisions that actually protect you.

Buyout Provisions and Valuation Methods

Most templates say something like "members may buy out a departing member's interest at fair market value." This sounds reasonable until you realize:

• Who determines "fair market value"?
• Which valuation method applies (asset-based, income-based, market comparable)?
• Is there a discount for minority interests or lack of marketability?
• What are the payment terms -- lump sum or installment?
• What triggers a mandatory buyout vs. an optional one?

A proper buyout clause specifies the exact valuation methodology, names a default appraiser or appraisal process, sets payment terms (typically 3-5 year installment with interest), and addresses what happens if the buying members can't afford the purchase price.

Dispute Resolution Mechanisms

Free templates either omit dispute resolution entirely or include a single line about arbitration. A comprehensive dispute resolution clause should escalate through stages:

1. Negotiation -- members attempt to resolve disputes directly (15-30 day window)
2. Mediation -- a neutral mediator facilitates discussion (30-60 days)
3. Arbitration or litigation -- binding resolution if mediation fails

The clause should specify the arbitration forum (AAA, JAMS), the governing law, the location, and who pays costs. For 50/50 LLCs, consider adding a "shotgun" or "Texas shootout" provision as a deadlock breaker.

Intellectual Property Assignment

If members contribute IP to the LLC or develop IP during LLC operations, who owns it? Most templates are silent on this. The operating agreement should:

• Assign pre-existing IP contributed by members to the LLC
• Specify that work product created for the LLC belongs to the LLC
• Address what happens to IP if a member leaves
• Define licensing terms if the LLC uses a member's personal IP

Tax Election Provisions

Free templates rarely address tax elections beyond the basics. A thorough operating agreement covers:

• Initial tax classification election (default, S-corp, C-corp)
• Process for changing tax elections
• Tax matters partner/representative designation (required under the Bipartisan Budget Act)
• Mandatory tax distributions to cover members' tax liabilities
• Special allocation rules and their compliance with IRC Section 704(b)

Capital Call Provisions

What happens when the LLC needs more money? Without capital call provisions:

• There's no mechanism to require additional contributions
• Members who contribute more don't get proportional credit
• The LLC may need to take on debt at unfavorable terms

A proper capital call clause defines who can authorize calls, notice periods, consequences of failure to contribute (dilution, loan treatment, or forced buyout), and maximum call amounts.

Drag-Along and Tag-Along Rights

These provisions protect both majority and minority members during a sale:

• Drag-along: Majority members can force minority members to sell (prevents minority holdouts from blocking a deal)
• Tag-along: Minority members can join a sale on the same terms (prevents majority members from selling their interests while leaving minorities behind)

Almost no free template includes these provisions.

Comparing Operating Agreement Providers

The fundamental limitation of template providers is that they use questionnaire-driven fill-in-the-blank approaches. This works for simple, standard scenarios. It fails when your LLC has non-standard profit allocation, members contributing different types of value (cash vs. services vs. IP), complex management structures, or state-specific nuances that a generic questionnaire doesn't capture.

Using Docmods to Generate Your Operating Agreement

Docmods takes a different approach. Instead of filling out a questionnaire and hoping the template covers your situation, you describe your LLC in natural language and the AI generates a customized operating agreement.

Example prompt:

"Generate a multi-member LLC operating agreement for a Florida LLC called Clearwater Ventures LLC. Three members: Sarah Chen contributing $200,000 cash (50%), Michael Torres contributing $100,000 cash plus existing client relationships (30%), and David Park contributing technical expertise and IP for the software platform (20%). Manager-managed with Sarah as managing member. Quarterly distributions. 5-year vesting schedule for David's interest since it's services-based."

Docmods produces a complete operating agreement addressing all of these specifics, including:

• Proportional capital accounts matching actual contributions
• Service-based interest vesting schedule with forfeiture provisions
• IP assignment clause for David's contributed technology
• Manager authority matrix matching Sarah's role
• Distribution waterfall reflecting the different contribution types

Where Track Changes Matter

Operating agreements aren't one-and-done documents. Members negotiate terms. Attorneys review and suggest changes. Partners propose amendments years later.

With Docmods, every edit generates real Microsoft Word track changes. When Michael's attorney suggests changing the non-compete radius from 50 miles to 25 miles, the change is visible in the document with clear attribution. When Sarah proposes adding a capital call provision after the first year, all members can see exactly what's being added.

This is especially valuable for multi-member LLCs where trust depends on transparency. Nobody wonders whether a provision was silently changed -- every modification is tracked.

Python SDK Example

For developers integrating operating agreement generation into legal tech platforms:

from docxagent import DocxAgent

agent = DocxAgent()
response = agent.chat(
    "Generate a single-member LLC operating agreement for a Texas LLC. "
    "Member: Jane Rodriguez. Capital contribution: $50,000. "
    "Business purpose: technology consulting. "
    "Include tax distribution provisions and IP assignment clause."
)

# Download the generated DOCX with proper formatting
agent.download("operating-agreement.docx")

The generated document is a real .docx file with proper formatting, headers, signature blocks, and all the structural elements that banks and attorneys expect.

Essential Clauses Checklist

Use this checklist when reviewing any operating agreement template. If your template is missing items from the "Critical" or "Important" categories, it's not comprehensive enough.

Critical (Every LLC)

• Member names, addresses, and ownership percentages
• Capital contribution amounts and types
• Profit and loss allocation ratios
• Management structure (member-managed or manager-managed)
• Voting thresholds for major decisions
• Distribution procedures and timing
• Transfer restrictions on membership interests
• Dissolution triggers and procedures
• Amendment procedures
• Governing law and jurisdiction

Important (Multi-Member LLCs)

• Buy-sell provisions with valuation methodology
• Right of first refusal on interest transfers
• Dispute resolution clause (mediation, then arbitration)
• Deadlock resolution mechanism
• Capital call provisions
• Non-compete and non-solicitation restrictions
• Confidentiality obligations
• Fiduciary duty standards (or waiver, if permitted)
• Tax matters representative designation
• Mandatory tax distributions
• Admission of new members procedure

Recommended (Complex LLCs)

• Drag-along and tag-along rights
• IP assignment and licensing provisions
• Insurance requirements
• Indemnification of managers and members
• Special allocation provisions (with 704(b) compliance)
• Vesting schedules for service-based interests
• Preemptive rights for new interest issuances
• Put and call options
• Key person provisions
• Anti-dilution protections

Common Mistakes to Avoid

Using a template from the wrong state. Operating agreement defaults vary significantly by state. A Delaware-optimized template used in California can create unintended tax consequences and compliance failures.

Equal ownership without a tiebreaker. 50/50 LLCs are the most common structure and the most common source of deadlock. If you split ownership equally, you need a mechanism for breaking ties -- a trusted advisor, a rotating deciding vote, or a shotgun clause.

Vague valuation language. "Fair market value" without a defined methodology is an invitation to litigation. Specify the valuation approach: multiple of EBITDA, book value, independent appraisal, or a formula.

Ignoring tax implications. Operating agreements have real tax consequences. Special allocations that lack "substantial economic effect" under IRC 704(b) will be disregarded by the IRS. Get a tax professional to review allocation provisions.

Not updating after major changes. Bringing in a new member, changing the management structure, or significantly altering capital contributions? The operating agreement needs to be amended. Operating under outdated terms creates confusion and potential liability.

Downloading a free PDF and never reading it. The worst operating agreement is one that nobody understands. Every member should read the entire agreement, ask questions about provisions they don't understand, and acknowledge the buyout and dissolution procedures specifically.

When You Need a Lawyer

An operating agreement template -- whether from LegalZoom, Rocket Lawyer, or Docmods -- is a starting point, not a finish line. You should involve an attorney when:

• Multiple members with unequal contributions. Allocating profits when one member contributes cash and another contributes services requires careful structuring for tax compliance.
• Real estate holdings. LLCs holding real property have specific requirements around transfers, mortgages, and tax treatment.
• Professional practices. Many states restrict who can be members of an LLC providing professional services (law, medicine, accounting).
• Series LLC structures. Not all states recognize series LLCs, and the operating agreement requirements are more complex.
• Significant assets or liabilities. When there's substantial money at stake, the cost of legal review is trivial compared to the cost of a poorly drafted agreement.
• International members or operations. Cross-border tax implications add significant complexity.

Docmods is designed to work with attorneys, not replace them. Generate a customized draft, then send the .docx file to your lawyer for review. The track changes feature means your attorney's suggestions are clearly marked and easy to accept or reject.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Operating agreements have significant legal and tax implications. Consult a qualified attorney and tax professional for advice specific to your situation.