Multi-member LLC operating agreement document pack

An LLC with two or more owners is a marriage with a balance sheet. The operating agreement is the prenup — and the parts that matter most are the ones nobody wants to think about while the partnership is new and exciting.

Who this pack is for

You're starting a business with two or more owners (you can have hundreds — every partner is a 'Member'). Maybe you're co-founders splitting equity. Maybe you're running an investment LLC with a passive investor. Maybe you're consolidating an existing partnership into an LLC structure. You've already filed Articles of Organization with your state and named the members; now you need the internal rulebook that says how decisions get made, how profits are allocated, what happens if a Member wants out, and what happens if a Member dies, divorces, or simply stops doing their share. The default state-law rules (in the absence of an OA) are rarely what most multi-Member LLCs actually want.

When to use it

Sign the OA immediately after the LLC is formed. The state's default LLC act fills in any gaps in your OA, and those defaults are often unworkable for actual businesses — equal distribution regardless of contribution, every Member having veto power on decisions, automatic dissolution on a Member's exit. The OA overrides those defaults with what you and your partners actually agreed. Sign before significant work begins, before significant money moves through the business, and definitely before any partner brings outside equity into the picture. If you've been operating without one, sign now and back-date the effective date to the formation date with a note that the OA reflects the actual practice since formation.

What it doesn't cover

This pack is a multi-Member operating agreement for an LLC taxed as a partnership (the federal default for multi-Member LLCs). It does not handle: LLCs that have elected S-corp or C-corp tax treatment (those need additional tax provisions about salaries, distributions vs. wages, basis tracking that the partnership form doesn't require), professional LLCs (PLLCs) for licensed professionals (which have additional state-specific requirements limiting Member identity to licensed practitioners), Series LLCs (which have layered structure provisions), benefit LLCs, or LLCs taxed as REITs / RICs. It does not draft buy-sell provisions in detail — the pack covers basic transfer rules but for businesses with significant value, dedicated buy-sell language is worth its own document. It does not address venture financing — convertible notes, SAFE notes, preferred-equity structures all require separate financing documents that integrate with but supplement the OA.

State-specific notes

Rules vary by jurisdiction. Below are notes for the states where multi-member llc operating agreement runs into the most variance. If your state isn't listed, default to your state's tenant-rights handbook or local legal aid.

Delaware (DE)

Delaware's LLC Act (6 Del. C. § 18) provides maximum freedom-of-contract — the OA can override almost any default. Delaware courts (the Court of Chancery in particular) have decades of LLC case law making OA enforcement predictable. Even non-Delaware businesses sometimes form LLCs in Delaware to access this body of law.

6 Del. C. Ch. 18 (Delaware LLC Act) →

California (CA)

California's Revised Uniform Limited Liability Company Act (Cal. Corp. Code § 17701) requires LLCs to have an operating agreement (oral, written, or implied — written is the safe choice). California also imposes an annual $800 franchise tax on LLCs and an additional gross-receipts tax above $250,000. Multi-Member LLCs file Form 568 annually.

Cal. Corp. Code § 17701.10 →

New York (NY)

NY LLC Law § 417 requires the OA to be in writing and adopted within 90 days of formation. NY also requires LLCs to publish notice of formation in two newspapers in the county where the LLC is located, for six consecutive weeks — an expensive ($500–$2,000) and quirky requirement. Multi-Member LLCs file IT-204 annually.

NY LLC Law § 417 →

Texas (TX)

Texas calls it a 'company agreement' (Tex. Bus. Orgs. Code § 101.001(1)) but the substance is identical. No state income tax but franchise tax (Texas Margin Tax) on revenue over $1.23M. Texas allows series LLCs and has a developed body of LLC case law.

Tex. Bus. Orgs. Code § 101.001 →

Common questions

How should we split equity?

There's no single right answer. Common starting points: equal split among co-founders (simple but ignores asymmetric contribution); split based on capital contribution (works when one partner is mostly money and another is mostly work); split based on negotiated allocation that reflects who's bringing what. Build vesting into co-founder splits — typically 4-year vesting with a 1-year cliff — so equity is earned over time, not granted up-front. Equity disputes are the most common source of LLC litigation; spend time getting this right.

Member-managed or manager-managed?

Member-managed: every Member has authority to act on behalf of the LLC; decisions made by majority of ownership. Best for small partnerships where everyone is active. Manager-managed: one or more designated Managers run day-to-day; Members vote on big decisions only. Best for LLCs with passive investors, complex governance needs, or where one partner is operational and the others are not. The OA should specify which structure and, if manager-managed, who the Managers are and how they're appointed/removed.

What's a 'unanimous,' 'majority,' or 'supermajority' decision threshold?

Unanimous = every Member must agree. Used for fundamental decisions: admitting a new Member, dissolving the company, amending the OA. Supermajority = typically 67% or 75% of ownership. Used for major decisions: large borrowings, sale of substantially all assets. Majority = >50% of ownership. Used for ordinary-course decisions. The pack lets you set the threshold; pick reasonable defaults to avoid deadlock — unanimous on everything is a common mistake that leaves any single dissenter with veto power.

How do profits and losses get split?

By default in the pack: in proportion to ownership percentages. Many LLCs use this; some use 'special allocations' (e.g., a partner who contributed cash gets profits first until their cash is returned). For partnership-taxed LLCs, special allocations must have 'substantial economic effect' under IRS rules to be respected — get tax advice before deviating from straight-percentage allocations. Distributions (actual cash to Members) are separately decided and don't have to match allocations exactly, especially in early years when retained earnings build the business.

What happens when a Member wants out?

The pack's transfer rules section is where you handle this. Standard provisions: right of first refusal (other Members get to buy the exiting Member's interest first, at the price an outside buyer offered), drag-along / tag-along rights (in larger transactions), valuation methodology (book value, agreed valuation, third-party appraiser), payment terms (lump sum vs. installments). Without these provisions, a departing Member can sell their interest to anyone — including a competitor or someone the remaining Members can't work with. This is one of the most-fought-over OA sections; resolve it before exit becomes urgent.

What if a Member dies, divorces, or files bankruptcy?

The OA's transfer rules typically apply: the deceased Member's interest passes to their estate (which the remaining Members may have a right to buy out), the divorced spouse may receive part of the interest by court order (which the OA can require be sold back), the bankrupt Member's interest becomes part of their bankruptcy estate (where the trustee can sell it). Without OA provisions, you can end up with a deceased partner's heirs as Members, an ex-spouse you've never met as a Member, or a bankruptcy trustee with voting rights. Treat these as table-stakes provisions, not edge cases.

What about taxes?

Multi-Member LLCs default to partnership tax treatment — file Form 1065 annually, issue K-1s to each Member showing their share of income/loss. Members pay tax on their share whether or not the LLC distributes cash, which means a tax bill can come due before the cash arrives. The OA should require 'tax distributions' — minimum cash distributions covering each Member's tax liability on allocated income. Without this provision, partners can owe more in tax than they've received from the LLC.

Should we elect S-corp tax treatment?

Common for service LLCs where partners earn wages plus profit distributions. S-corp election (via Form 2553) lets partners pay themselves a 'reasonable salary' subject to payroll tax, then take the rest as distributions free of self-employment tax — saves 15.3% on the distributed portion. Tradeoffs: more administrative complexity, restrictions on Member identity (no corporate or non-resident-alien Members), one-class-of-stock rule (no special allocations of profit). Talk to a CPA before electing.

Pike provides plain-language legal information, not legal advice. State and local rules change. If money, custody, or your housing is on the line, talk to a licensed attorney or your local legal aid office.