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  • Matthew McCabe

What is an LLC Operating Agreement?

An operating agreement is generally considered a contract that sets forth the general rules of the Limited Liability Company (LLC). It can be thought of like the constitution of the company. An operating agreement will commonly set forth the relations among the members as members and between the members and the limited liability company. This often includes obligations of the members, the percentage interest of the members, allocation of profits and losses, and so forth. Additionally, if the company is manager managed it will commonly set forth what rights, duties, and responsibilities the manager has in their capacity as the manager.

An operating agreement, or sometimes alternatively called an LLC Company Agreement, is not required to have a valid LLC in Arizona. However, if a company does not setup an Operating Agreement for an Arizona LLC then the company will be governed by the legislative's rules regarding LLC's. The legislative rules can be thought of as "default rules." Thus, if you do not have an operating agreement in place you are electing to abide by what the Arizona legislature has decided, or court has interpreted, the way an LLC should operate. Additionally, if your operating agreement does not expressly address a certain subject, then the default rules can be determinative. So what? You may be thinking. However, do you want to have a politician determine the way your company runs? Here is a blog post that further discusses some of the implications of the default rules and why they can cause considerable problems for owners of LLC's. If you are single-member LLC you still may want an operating agreement. See the article about single-member operating agreements.

Now what? Thunderbird Law can generally prepare and draft an operating agreement for your company for a reasonable flat fee. See our operating agreement services page for more information.


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