The Rulebook
Writing Your Operating Agreement
The operating agreement, clause by clause: what to write, what silence costs, and the traps.
01
The operating agreement: the constitution you didn't know you signed
Every LLC has an operating agreement. If you never wrote one, your state legislature wrote it for you, and you have never read it. The drafting manual, clause by clause, starts here.
The deal
02
Members, money, and the three dials of ownership
Who put in what, who owns what, and who gets what are three different questions, and the agreement can answer them three different ways. Contributions, sweat equity, and capital accounts in plain terms.
03
Management: who runs the company and who can sign its name
Member-managed or manager-managed is the agreement's biggest single switch, and the default position surprises people. Authority limits, officers, and why internal rules don't stop an outsider holding a signed contract.
04
Voting and deadlock: the tie goes to the courthouse
What needs a vote, at what threshold, counted by heads or by dollars, and what happens when a 50/50 company splits down the middle. Silence's answer to deadlock is judicial dissolution, which nobody wants.
05
Distributions: who decides when the money comes out
Profit on paper is not cash in hand. The distribution clauses decide who converts one into the other, in what order, and whether the members get at least enough to pay the tax bill the K-1 sends them anyway.
When interests move
06
Transfers and buy-sell: every interest changes hands eventually
Consent rules, first refusal, valuation, and funding. The default law makes leaving nearly impossible and lets the economics wander anyway, and the buy-sell is the machinery that fixes both.
07
The four Ds: death, divorce, disability, and bankruptcy
Four events that transfer a membership interest without anyone deciding to sell. Each has a different mechanism, a different opposing party, and the same worst answer: silence.
08
Leaving and expulsion: the exit nobody drafted
Whether a member can leave, whether the others can make one leave, and what the departing member is owed. The defaults answer all three badly, and one obligation follows the leaver out the door.
The hard edges
09
Duty waivers: how far loyalty bends
The default duties forbid your partners from competing, self-dealing, or taking opportunities. That sounds protective until you have a second business. What to waive, what to keep, and the waiver that confesses.
10
Creditor-hardening: drafting the shield you chose a state for
The charging order is a statutory shield with agreement-shaped holes. The clauses that reinforce it, the template clauses that quietly dismantle it, and why hardening bolted on after the creditor appears gets unwound.
11
Dispute resolution: choosing the courtroom before the fight
Forum, arbitration, mediation ladders, fee-shifting, and the emergency carve-out. The one set of clauses drafted for a day everyone hopes never comes, read carefully only after it has.
12
The boilerplate that isn't: amendment, integration, and the last five pages
The clauses everyone skips include the one that controls all the others: who can amend the agreement. Plus the sentence that kills handshake deals, and why the minority's protections need a lock.