Why Have an Operating Agreement for an LLC?
(Or, How to Avoid Business Drama and Future Regrets)
We hear it all the time: “It’s just me and my business partner—why would we need a whole fancy operating agreement for our little LLC?” Or: “It’s just me and my spouse, what could possibly go wrong?” (Spoiler: a lot.)
But whether you’re a solo business owner or part of a small-but-mighty dream team, an operating agreement isn’t just some bureaucratic formality—it’s the rulebook, the backup plan, and the pre-nup for your business. It helps you avoid costly legal tangles, preserve relationships, and—bonus!—look super official to banks and investors.
Here’s why this document deserves a spot at the top of your business to-do list:
1. Dodge the Dreaded Default Rules
Without an operating agreement, your state’s default LLC laws will control the day on all matters not otherwise defined and agreed to. These laws are one-size-fits-none and rarely align with how real businesses want to run.
- With an operating agreement, you decide how to handle:
- Profit and loss distributions (No, you don’t have to split 50/50 just because you’re friends!)
- Ownership transfers (because you probably don’t want your partner selling their share to their cousin Larry)
- Tax elections
- What happens if someone dies (yes, morbid—but necessary)
- How much debt one member can incur on behalf of the business
- Voting rights and decision-making authority
In short: Don’t let the state write your business rules. Write your own.
2. Run the Show—Your Way
An operating agreement outlines how your business is managed. It’s like your business’s owner’s manual.
For multimember LLCs, it settles who’s in charge of what, who gets a vote, and what happens when there’s a disagreement.
For single-member LLCs, it gives structure and shows that you mean business (literally). Plus, it lays the groundwork in case you bring on future partners—or just want someone to steer the ship if you’re out of commission.
Because nothing says “I’ve got this” like having a plan in place before things get weird.
3. Yikes! Your Liability Shield
One of the best perks of forming an LLC is personal liability protection—aka, your stuff stays your stuff, even if the business gets sued. But here’s the catch: If you don’t treat your LLC like a real, separate entity, courts might not either.
An operating agreement is one more way to show the world (and the courts) that your LLC is legitimate. Without one, your business could be mistaken for an informal partnership—or worse, a hobby.
This is especially important for single-member LLCs. Without clear documentation, it’s easier for a judge to say, “Nice try, but you and your business are basically the same person.”
Don’t give them the chance.
4. Avoid Accidental Business Marriages
What happens if a member leaves, retires, or passes away? Without an operating agreement, your options might range from confusing to catastrophic.
Imagine waking up one day to find yourself in business with your partner’s ex-spouse, their third cousin, or someone who’s never worked a day in the industry. Sound fun? No? That’s why you plan ahead.
Multimember LLCs: Outline what happens when someone leaves (for any reason).
Single-member LLCs: Decide now whether your business gets handed off or wrapped up in your absence
Succession planning = peace of mind for you and everyone who depends on your business.
5. Impress Banks, Investors, and Your Future Self
Want to open a business bank account? Get a loan? Bring on investors? You’ll likely need an operating agreement.
Banks and backers want to see that your business has its act together—and a custom, signed operating agreement is the gold star they’re looking for. It shows that you’re not winging it and that your business is built to last.
Also: Your future self will thank you when you don’t have to scramble to explain who owns what and why when opportunities (or emergencies) come knocking.
Final Thoughts: Don’t Wing It—Write It
An operating agreement is like the GPS for your business. Sure, you could try to navigate without it, but why risk a wrong turn that leads to legal trouble, partner conflict, or financial chaos?
As they say, it’s always fine when it’s fine. But when it’s not fine, that’s when you really need this document to guide you. Whether you’re a sole owner or have partners, having an operating agreement is one of the smartest moves you can make.
If your LLC is still operating without one, now’s the time to fix that. At The Harbor Law Group, we help businesses like yours create clear, customized operating agreements that reflect your vision—and protect it.
📧 info@theharborlawgroup.com 📞 253-358-2215
