An operating agreement is an agreement among limited liability company ("LLC") members governing the LLC's business, and Member's financial and management rights and duties. No state requires an LLC to have an Operating agreement. LLCs operating without an operating agreement are governed by the State's default rules contained in the relevant statute and developed through state court decisions. An operating agreement is similar in function to corporate by-laws. In single member LLCs, an operating agreement is a declaration of the structure that the member has chosen for the company and sometimes used to prove in court that the LLC structure is separate from that of the individual owner and thus necessary so that the owner has documentation to prove that he or she is indeed separate from the entity itself.
An operating agreement is used to override default rules imposed by a state's LLC Act. Operating Agreements generally address: (i) member's capital and service contributions; (ii) management of the LLC (Member-Managed or Manager-Managed); (iii) buy-out provisions; (iv) voting rights; (v) managers' rights and responsibilities; (vi) distributions; (vii) tax planning; (viii) dissociation and dissolution.