Do I Need an Operating Agreement? Why the Answer Is Almost Always Yes

If you’ve recently formed an LLC—or are thinking about it—you may be wondering whether you really need an operating agreement. After all, if you’re the only owner, or you’re in business with a close friend or family member, why bother with more paperwork?

Here’s the short answer: you almost always need one. Even when the law doesn’t require it, having an operating agreement in place is a very smart decision that any business owner should make.

What Is an Operating Agreement?

An operating agreement is a legal document that outlines how your limited liability company (LLC) is structured and how it will operate. It typically includes:

• The ownership breakdown (who owns what percentage)

• How decisions are made

• How profits and losses are distributed

• What happens if a member leaves, dies, or wants to sell

• Procedures for resolving disputes

Think of it as a roadmap for how your business will be managed—especially when things don’t go according to plan.

Is It Legally Required?

This depends on your state. A few states (like California, New York, and Missouri) legally require LLCs to have an operating agreement, even if you’re a solo owner. Most states, including Ohio, don’t require one by law—but they do enforce default rules (such as member voting rights, profit sharing, and rules of withdrawal) that automatically apply to your LLC if you don’t have an agreement in place.

And here’s the catch: those default rules may not align with how you want to run your business.

6 Reasons You Should Have an Operating Agreement

1. Protects Your Limited Liability Status

Having a formal operating agreement helps show that your LLC is a legitimate, separate legal entity—not just a sole proprietorship in disguise. This is critical in maintaining your personal liability protection if you’re ever sued.

2. Clarifies Ownership and Management Roles

Whether you’re solo or working with partners, an operating agreement clearly defines who owns what, and who is responsible for managing day-to-day operations. It can prevent misunderstandings and power struggles down the road.

3. Prevents Internal Disputes

Many business partnerships start strong but face challenges over time. A good operating agreement can prevent legal battles by laying out how decisions are made, how disagreements are handled, and how members can enter or exit the business.

4. Overrides Unfavorable State Default Rules

State laws are one-size-fits-all. For example, some states require equal profit-sharing regardless of ownership percentages—unless your operating agreement says otherwise. A custom agreement gives you control.

5. Attracts Investors and Builds Credibility

Banks, investors, and potential partners often ask to see your operating agreement before doing business with you. It shows that you’re organized, serious, and legally prepared.

6. Helps with Long-Term Planning

An operating agreement forces you to think ahead—about succession, exit strategies, and unforeseen events like disability or death. That’s not just smart legal planning; it’s smart business.

Common Misconceptions

(1) “I’m a single-member LLC. I don’t need one.”

Actually, you do. It reinforces your limited liability protection and helps distinguish you from a sole proprietorship.

(2) “I trust my business partner. We don’t need paperwork.”

Trust is great—but a written agreement is better. Even well-intentioned people can remember things differently or grow apart in vision.

What Happens If I Don’t Have an Operating Agreement?

Without an operating agreement, your business is governed by your state’s default LLC laws—which may not reflect your preferences. Worse, if there’s a disagreement, you may have no written evidence to support your position in court. That could put your business, your relationships, and your personal assets at risk.

Bottom Line

An operating agreement is one of the most important legal documents your LLC can have. It protects you, your business, and your future. Whether you’re a solo entrepreneur or part of a growing team, this document sets the foundation for long-term success and peace of mind.

Need help drafting or reviewing your operating agreement? Contact us today for a personalized consultation.

(This article is provided for general information purposes and is not considered legal advice. Please contact our office if you would like counsel specific to your matter.)