LLC Operating Agreement: Definition, Purpose, Format, Importance [Video]

An LLC operating agreement is a document that customizes the terms of a limited liability company according to the specific needs of its members. It also outlines the financial and functional decision-making in a structured manner. It is similar to articles of incorporation that govern the operations of a corporation.

Although writing an operating agreement is not a mandatory requirement for most states, it is nonetheless considered a crucial document that should be included when setting up a limited liability company. The document, once signed by each member (owner), acts as a binding set of rules for them to adhere to.

The agreement is drafted to allow owners to govern the internal operations according to their own rules and specifications. The absence of an operating agreement means that your business has to be run according to the default rules of your state.

An LLC is a type of U.S. business entity that is easy to form and simple to manage, and importantly …