What to Include in an Operating Agreement for a Multi-Member LLC
Starting a business with others is an exciting endeavor, but it also brings its share of legal decisions. When you're forming a multi-member LLC, your operating agreement is one of the most important documents you'll create. It's not just paperwork—it's the foundation of how your business will function, grow, and handle challenges.
At StachlerHarmon Attorneys at Law, we work with clients throughout Dayton, Ohio, as well as Centerville, Springboro, Miamisburg, and Vandalia, helping them create strong operating agreements that reflect their goals and values.
Whether you're launching a new venture or formalizing a long-standing business relationship, we understand how personal and important these decisions are. Business partnerships involve trust, and protecting that trust through clear legal documents can give you confidence in your future.
If you’re forming a multi-member LLC in Ohio, reach out to us at StachlerHarmon for help drafting or reviewing your operating agreement.
Why an Operating Agreement Matters
An operating agreement isn’t legally required in Ohio, but that doesn’t mean it’s optional. Without one, your business will be subject to Ohio’s default LLC laws—which may not reflect the way you and your partners actually want to do business.
This document sets out the expectations, rights, and responsibilities of each member. It can also prevent disputes down the road by providing clear processes for handling profits, losses, decision-making, new members, and more. In short, it puts everyone on the same page from the beginning.
Key Information to Include
Let’s walk through what your multi-member LLC operating agreement should cover. Each section in your agreement plays a critical role in defining how your business will operate.
Basic Company Details
Every agreement should start with the essential facts about your LLC. This section lays the groundwork for everything that follows.
Important items to include:
Business name and address: Make sure it matches your Articles of Organization.
Formation date: The date the LLC was officially created.
Registered agent: The person or service designated to receive legal documents.
Business purpose: A short description of what the company does.
Duration of the LLC: Usually perpetual unless there's a planned end date.
These details may seem routine, but they provide a necessary legal context for your operating agreement. It's always best to start with the basics before diving into the specifics.
Member Information and Ownership Percentages
Once you've covered the company’s identity, the next step is to clearly list the members and their ownership interests.
Include these elements:
Names and addresses of each member
Capital contributions
Ownership percentages based on contributions or agreed terms
Voting rights
This section clarifies who owns what and how decisions will be made. Without it, there can be confusion—or worse, legal disputes—if disagreements arise later.
Management Structure and Responsibilities
LLCs can be member-managed or manager-managed. It's crucial to define who’s running the business and what authority they have.
Clarify the following:
Management type: Member-managed or manager-managed
Duties of members or managers: Responsibilities for day-to-day operations
Limits on authority: Define what decisions require a vote or unanimous agreement
Compensation: Whether managers or members are paid for their roles
A clearly defined structure prevents overreach and helps everyone understand who’s responsible for what. Even in close-knit partnerships, spelling out these roles avoids misunderstandings later on.
Decision-Making and Voting Procedures
Decision-making can be a major source of friction in multi-member LLCs. By laying out how choices will be made, you reduce the risk of internal conflict.
Some key points to address include:
Voting thresholds: What percentage is needed for different types of decisions (simple majority, two-thirds, unanimous)
Meeting requirements: Frequency, notice, and quorum requirements
Deadlocks: What happens when members can’t agree
Establishing a voting process helps maintain business momentum and fairness. When everyone knows how decisions get made, it supports better communication and trust.
Distributions and Allocations
Profits and losses don’t always have to be split evenly. Your agreement should explain how the financial side of your business will work.
Financial provisions to cover include:
Profit and loss allocations: How earnings and losses are divided
Distribution timing: When members get paid
Reinvestment policies: Whether earnings stay in the company or get paid out
Money is one of the top causes of disputes in business. A detailed plan for distributions can reduce misunderstandings and align expectations.
Member Contributions and Additional Capital
Sometimes, your LLC may need additional funds. It’s better to plan for that possibility from the start.
Important details to include:
Initial capital contributions: Each member’s investment at the start
Future contributions: Whether members can be required to contribute more
Loans to the LLC: Rules around members lending money to the business
When contributions are clearly outlined, it helps avoid pressure or confusion if the business hits a rough patch or needs to grow quickly.
Transfers of Interest and Buy-Sell Terms
What happens if a member wants to leave the business, becomes incapacitated, or passes away? Your operating agreement should offer a clear plan.
Include these types of provisions:
Restrictions on transfers: Prevent members from selling interests to outsiders without approval
Buyout process: Steps for valuing and purchasing a member’s interest
Right of first refusal: Gives existing members the chance to buy a departing member’s share
Triggering events: What situations initiate a buy-sell (death, divorce, bankruptcy, etc.)
These clauses protect the integrity of your business and make transitions smoother. Without them, you could find yourself suddenly in business with someone you didn’t choose.
Dispute Resolution
Even with a detailed agreement, conflicts can happen. Planning for how to handle disagreements is key to keeping the business on track.
Consider these resolution tools:
Mediation or arbitration: Alternatives to court that can save time and money
Jurisdiction and venue: Specify where disputes will be resolved
Legal expenses: Decide whether the losing party covers legal fees
While no one hopes for disputes, setting up a fair process to resolve them can help preserve relationships and protect the company’s future.
Dissolution and Winding Up
No one likes to think about ending a business, but having a plan for dissolution is a critical part of protecting your investment.
Include these essential terms:
Events triggering dissolution: Agreement of members, expiration date, bankruptcy, etc.
Winding up process: Steps to close the business, pay debts, and distribute remaining assets
Member responsibilities: Who handles what during dissolution
Planning for a clean exit keeps things orderly if the business ends. It also helps minimize stress and confusion during what could be a challenging time.
Tax Treatment and Fiscal Matters
LLCs offer flexible tax treatment options. Your operating agreement should reflect how your business will be taxed and how financial matters are handled.
Address these topics:
Tax classification: Whether your LLC will be treated as a partnership, S corporation, or C corporation
Tax year and accounting methods: Cash vs. accrual accounting
Designated tax matters member: Who interacts with the IRS on behalf of the LLC
Being clear on tax matters avoids confusion and aligns your agreement with your filings. It also helps your accountant work more efficiently.
Amendments to the Agreement
No matter how thorough your agreement is, you may need to change it later. Including a process for amendments makes that easier.
Make sure to define:
Who can propose amendments
Required vote to approve changes
Notice requirements
This section assures your operating agreement can grow with your business. A flexible but defined process keeps everyone informed and involved.
Additional Provisions to Consider
Some businesses need specific clauses depending on their industry, structure, or future plans.
Optional additions might include:
Non-compete clauses
Confidentiality agreements
Succession planning
Indemnification for members or managers
We help our clients think through which clauses apply to their situation. A customized agreement reflects your unique goals and reduces future risks.
Contact an Experienced Business Law Attorney
Creating a strong operating agreement isn’t about filling in a template. It’s about building a solid legal foundation that supports your business relationships and long-term goals.
Whether you're in Dayton, Centerville, Springboro, Miamisburg, or Vandalia, the attorneys at StachlerHarmon Attorneys at Law are here to help you create an agreement that works for your specific needs.
We’ll guide you through each decision, explain your options, and make sure your agreement reflects your values and vision. Don’t leave one of the most important business documents to chance. Reach out to us today to schedule a consultation and get started on your LLC’s operating agreement.