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The Operating Agreement is the document that controls the operations of an LLC. It is similar to corporate bylaws or a shareholder’s agreement or a partnership agreement. Unlike the articles of organization which is a public document, the operating agreement is not open to public scrutiny. But what does the agreement actually contain?

The members of the limited liability company have some discretion in what should be included in the operating agreement but at a minimum, it should contain the time and place for meetings of members, quorum requirements for voting, and the manner in which membership meetings should be conducted and decisions reached. It can also provide details concerning the members relationships with each other, restrictions on transferability of membership interests, as well as the relative rights of different classes of memberships, such as voting rights and the distribution of profits, losses and cash flow. It can also cover the selection of management and the rights of members to remove managers and be consulted with respect to management decisions. In New York, the terms of an Operating Agreement are governed by the N.Y. Limited Liability Company Law § 417 which is set forth below:

“(a) Subject to the provisions of this chapter, the members of a limited liability company shall adopt a written operating agreement that contains any provisions not inconsistent with law or its articles of organization relating to (i) the business of the limited liability company, (ii) the conduct of its affairs and (iii) the rights, powers, preferences, limitations or responsibilities of its members, managers, employees or agents, as the case may be. The operating agreement may set forth a provision eliminating or limiting the personal liability of managers to the limited liability company or its members for damages for any breach of duty in such capacity, provided that no such provision shall eliminate or limit: (1) the liability of any manager if a judgment or other final adjudication adverse to him or her establishes that his or her acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled or that with respect to a distribution the subject of subdivision (a) of section five hundred eight of this chapter his or her acts were not performed in accordance with section four hundred nine of this article; or (2) the liability of any manager for any act or omission prior to the adoption of a provision authorized by this subdivision. (b) The operating agreement of a limited liability company may be amended from time to time as provided therein; provided, however, that, except as otherwise provided in the operating agreement or the articles of organization, without the written consent of each member adversely affected thereby, (i) no amendment of the operating agreement or (ii) to the extent any provision concerning (A) the obligations of any member to make contributions, (B) the allocation for tax purposes of any items of income, gain, loss, deduction or credit, (C) the manner of computing the distributions of any member or (D) the compromise of an obligation of a member to make a contribution is contained in the articles of organization, no amendment of such provision in the articles of organization, shall be made that (i) increases the obligations of any member to make contributions, (ii) alters the allocation for tax purposes of any items of income, gain, loss, deduction or credit, (iii) alters the manner of computing the distributions of any member or (iv) allows the obligation of a member to make a contribution to be compromised by consent of less than all the members. (c) An operating agreement may be entered into before, at the time of or within ninety days after the filing of the articles of organization. Regardless of whether such agreement was entered into before, at the time of or after such filing, such agreement, may be effective upon the formation of the limited liability company or at such later time or date as provided in the operating agreement; provided, however, under no circumstances shall an operating agreement become effective prior to the formation of such company.

According to, “depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC’s owner’s tax return . . .”  If the LLC previously elected S-Corp status it will need to make a new election each time it brings in a new member.


If you have any legal questions or need help with operating agreements for limited liability companies, please contact Attorney Scott Lanin at (212) 764-7250 x 201 or use the contact form in the right sidebar.

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