Default rules: the operating agreement your state wrote for you

Millions of LLCs run on an operating agreement nobody wrote. The owners skipped the document, or downloaded a template that answers a tenth of the questions, and assume the gaps are empty.

The gaps are not empty. Every LLC ships with factory settings: a full set of rules, written by the state legislature, that governs every question your agreement fails to answer. No agreement means all factory settings. A thin template means factory settings for everything the template skipped. And the settings differ by state, sometimes in ways that would horrify the owners if anyone read them aloud at the signing.

The previous topic covered how much of the rulebook you are allowed to rewrite. This one covers what the rulebook says when you don’t. These defaults are, functionally, the most widely adopted operating agreement in America, and almost nobody who is governed by it has read a word.

Who can sign

Start with the setting that scares people most once they see it.

In a member-managed LLC, which is itself the factory setting nearly everywhere, the default rule is that each member can bind the company. Delaware’s statute says it in one line: unless the agreement provides otherwise, each member and manager has the authority to bind the limited liability company. Your 20 percent partner can sign a lease, order inventory, hire a contractor, and the company is on the hook, because the factory settings handed every owner the company pen.

The fix has two layers. Switching to manager-managed pulls the pen back to the named managers. And the uniform act states offer a public filing, a statement of authority, that puts the world on notice of who can and cannot sign. But those are changes you make. Out of the box, everyone signs.

Who votes, and the split that shocks people

Put money in unequally, skip the agreement, and ask who controls the company. The answer depends entirely on which family of statute your state belongs to, and the two families give opposite answers.

The uniform act states default to per-head voting: every member gets one equal vote, regardless of money in. The partner who contributed 5 percent votes as loudly as the partner who contributed 95. The theory is that an LLC is a partnership of people before it is a stack of capital; the practice is that the money partner discovers, mid-dispute, that they never had control at all.

Delaware runs the opposite default: voting power tracks each member’s share of the profits. Its statute measures the key decisions, like the two-thirds vote to dissolve, by percentage interest in profits, not by counting heads. Money in, power out.

Neither default is wrong. What is wrong is not knowing which one owns your silence. A 70/30 deal on a handshake is a different company in Ohio than in Delaware, and the owners find out during the first real fight.

Who gets the money

The same family split runs through distributions, and here the uniform default genuinely surprises people: before dissolution, distributions are shared equally per member. Not by ownership, not by contribution. Equally. The investor who put in $90,000 against a partner’s $10,000, with no agreement saying otherwise, is entitled to the same distribution check in a uniform act state. Delaware’s default shares by contribution value instead.

Two more money settings hide in the silence. Nobody can force a distribution: the default everywhere is that profits sit in the company until whoever holds the decision power says otherwise, which connects directly to the starvation game on the charging orders page and to the control question above, since the voting default decides who holds that power.

And a Delaware case supplies the sharpest trap on this page. Four members agreed, in a signed document, to contribute $10,000 each for 25 percent apiece. One never paid his in full. The court held his ownership stayed at 25 percent anyway, because the agreement never said what happens when a contribution fails. The factory settings contain no penalty for the partner who doesn’t pay. If you want dilution for a missed capital call, you have to write it, and almost no template does.

The paper rights

The defaults also hand every member a set of rights that only matter in a fight, which is exactly when they matter enormously. Members can demand the company’s records and financial information; the scope varies by state, and it is the first tool a frozen-out member reaches for. A member can also sue on the company’s behalf, a derivative suit, when the people in control are the ones doing the harm and will obviously never sue themselves. These rights sit quietly in the statute until the day one partner stops trusting another, and then they are the whole game. Whether your agreement can shrink them is a state-family question from the previous topic.

The settings that used to bite and mostly don’t

Two old traps deserve a line each, mainly so you recognize outdated advice. Early LLC statutes gave companies a fixed lifespan and dissolved them when any member died or left; both defaults are gone, and the modern factory setting is perpetual life that survives a member’s exit. Articles warning that your LLC dies with a member are describing the 1990s. What actually happens to a member’s interest at death is its own topic, and for the one-owner company it is covered in Single-member LLCs.

Why this page matters more than it looks

The defaults were written as a safety net, and for a company that never has a dispute they work fine, which is why the problem stays invisible. Every setting on this page is harmless until the day it isn’t: the partner who signs a disastrous contract with the pen the statute handed him, the minority member who turns out to hold equal control, the equal distribution the small contributor is legally owed, the deadbeat who keeps his full stake.

The pattern across all of them: the factory settings assume all members are equal and all members are trustworthy, because a statute has to assume something. The moment your company has unequal money, unequal work, or imperfect trust, which is to say the moment it is a real company, the defaults stop matching reality, and the gap between what the owners assume and what the silence says is where the lawsuits live.

The repair is a real operating agreement that answers these questions on purpose, which is a project this site treats as its own subject. But the first step costs nothing: know which family your state belongs to, and read your silence the way a judge will.