What is included in a Delaware LLC Operating Agreement?
According to Delaware Code Title 6 § 18-101, your operating agreement (or “limited liability company agreement”) can be written, oral or implied. But a verbal agreement isn’t likely to hold up in court, so it’s always better to have a written operating agreement. It should include the following information:
- Activities of your LLC
- Transfer of membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Management
- Compensation
- Bookkeeping procedures
- Dissolution
What information do I need for Northwest’s free Delaware LLC operating agreement?
Want to focus on your business and leave the legal stuff to us? Our lawyers drafted a comprehensive operating agreement you can use for free. You can even fill it out on this page, save it in a free account for later, and download a completed draft to sign.
In order to fill out our free operating agreement template, you’ll need your:
This must be your business’ legal entity name, or the name you put on your LLC Certificate of Formation.
Did an LLC member contribute $500? $5k? A storefront? Put that here.
You’ll just write in 16 here since our version has a set amount of pages.
Remember, this is an internal document, so you won’t have to submit these names to the state just because they’re on here. However, you might need to add these people to your BOI Report.
Include any initial contributions, even if it’s only a small percentage.
While we recommend having a business bank account, some banks like to actually see the operating agreement before you open the account. If that’s the case, you can leave this blank for now.
This is the place your business operates from.
You can add this in later if you aren’t sure when your meeting will be held.
There are a few spots in our template where you’ll need a signature from one or more members.
Why should a Delaware LLC have an operating agreement?
A Delaware LLC should have an operating agreement because a company cannot act for itself. In order to operate, LLCs require real humans (and other entities) to conduct company operations.
Operating agreements are not legally required for Delaware LLCs, specifically stating in statute that “a limited liability company (including any protected series or registered series thereof) is not required to execute its limited liability company agreement.” But don’t mistake being technically optional for being unnecessary. We recommend you put your operating agreement in writing, and any good lawyer would tell you the same thing. Here’s why.
1. Your operating agreement proves you own your LLC.
You’re not required to include the names of your LLC members when filing your Certificate of Formation in Delaware, so you cannot easily use it as proof of ownership. Your operating agreement, however, includes the names of all members, so you can use it to show that you own your business.
2. An operating agreement can help reinforce your limited liability status.
To benefit from limited liability status, you must be able to demonstrate that your Delaware LLC is its own legal entity separate from its owners. Opening a bank account for your LLC shows this separation, as does creating and following an operating agreement.
3. An operating agreement can help settle disputes between members.
Misunderstandings are nearly impossible to avoid within any company (or group of people, for that matter). But having a strong operating agreement to establish company rules upfront can help prevent those misunderstandings from turning into full-blown disputes.
4. An operating agreement can override Delaware’s default laws.
Without an operating agreement, your LLC will automatically be governed by Delaware’s Limited Liability Company Act. However, the state’s default statutes might not work for your business. It’s better to have an operating agreement with rules and procedures that fit your Delaware LLC (within the bounds of the law).
Delaware Case Law
“Consider the case of In re Carlisle Etcetera LLC, where the failure to actually adopt and maintain a comprehensive and clear operating agreement led to disputes among the members, with one group claiming to be members and demanding dissolution of the LLC. Unsurprisingly, without an operating agreement to resolve the matter internally, the dispute among the members resulted in extensive and expensive litigation. As part of the litigation, the courts had to determine whether a separate entity was a member of the LLC.
“Such valuable resources could have been preserved had the members of the LLC taken the time to plan ahead, discuss potential pain points, and distill their collective understanding into an operating agreement.”
FAQs
No. Delaware state law does not require you to create and maintain an operating agreement for your LLC. However, you’ll want to have an operating agreement for many aspects of running a business. Banks, landlords and investors will want to see proof of ownership when you deal with them.
No. Your operating agreement is an internal document, which means you’ll file it among your own business files.
Actually, yes. It may seem weird to have to create an agreement with yourself. But even single-member LLCs need an operating agreement to show proof of ownership, which is necessary for certain tasks and—most importantly—for maintaining limited liability.
*This is informational commentary, not advice. This information is intended strictly for informational purposes and does not constitute legal advice or a substitute for legal counsel. This information is not intended to create, nor does your receipt, viewing, or use of it constitute, an attorney-client relationship. More information is available in our Terms of Service.