What’s An Operating Agreement And Why Every LLC Needs One

Posted July 09, 2025 in Uncategorized

Starting a new business is exciting, but don’t get so caught up in realizing your dream that you forget one of the most important steps: Drafting your operating agreement. If you choose a Limited Liability Company (LLC) as your business form, an operating agreement can help reduce your personal liability, as well as avoid legal and financial trouble later on.

Not all operating agreements are created equally. To ensure yours is effective and legally sound, talk to the attorneys at Volpe Law LLC. Our Colorado business formation lawyer can draft your document according to your specific needs, industry, and business goals.

What is an Operating Agreement?

Operating agreements are legal documents that set forth the structure, decision-making authority, and management of the enterprise. This document outlines the plan of operation for an LLC, establishing the purview of each partner or investor and detailing how the business is to be run. It’s a binding contract signed by each member of the LLC.

A good operating agreement should include:

• Each member’s ownership percentage
• How profits and losses are distributed
• Each member’s duties and any benefits afforded to each
• How (and if) new members are admitted
• Establishing a board and outlining how and when meetings will be held
• Provisions for ownership transitions, including buyout processes
• Dispute resolution procedures

Operating agreements should be detailed enough to provide a clear plan in the event of a business dispute yet remain flexible enough to adapt as the business evolves or the market changes.

Benefits of Drafting an LLC Operating Agreement

As experienced Colorado business formation lawyers, we’ve handled many business disputes that could have been avoided had the LLC members drafted a thorough operating agreement.

The primary benefit of an operating agreement is the clarity it provides on everything from how much each partner’s profit share is to the way the organization will be run. Good operating agreements also include provisions for dispute resolution, such as the option for one partner to sell their interest and withdraw from the LLC.

LLCs offer more protection from personal liability; that is, creditors or plaintiffs may not seize the members’ personal assets in the event of a successful lawsuit. Without a formal operating agreement, though, there may be less protection for the members.

Protection from personal asset seizure isn’t the only protection that LLC operating agreements offer. Without a signed LLC in place, Colorado’s default rules may govern your organization. This opens all partners up to additional risk.

There really aren’t many downsides to a legal operating agreement for an LLC. You may find that your partners may push back on having a formal document when “just a handshake should do.” However, this agreement protects everyone involved and can make settling disputes much easier than recalling the terms of a handshake deal made years prior.

Is an Operating Agreement the Same as My Articles of Organization?

Your internal operating agreement is a different document than the Articles of Organization you filed with the Colorado Secretary of State. This is a legal requirement for operating an LLC in the state; it contains details about who owns the business and is responsible for its debts.

Operating agreements focus on ownership, business management, and financial obligations and benefits. It’s an internal document that outlines the business’s operations and is not publicly filed.

How Can I Get an Operating Agreement For My LLC?

You can launch your LLC business without an operating agreement; if you’ve already opened your doors, it’s not too late to draft one. Our Colorado business formation lawyer can draft a bespoke agreement for you and your partners. Call Volpe Law, LLC today.