Operating Agreements

An LLC operating agreement is the internal contract among the owners of a limited liability company, called members. It sets out who owns what share of the company, who has authority to run and sign for it, how profits and losses are divided, and what happens when an owner leaves, dies, becomes disabled, or the members cannot agree. It is not filed with the state and is not a public document, but it is the document a court, a bank, or a departing member’s estate will look to first when a question comes up.

Fisher Stone drafts operating agreements for New York LLCs, from a single owner opening a first business to multi-member companies restructuring how they are run. Every agreement is prepared for a flat fee, quoted up front before any work begins, and a licensed New York attorney handles the drafting from start to finish, reachable directly by call, email, or text. There is no call center and no handoff from the attorney you speak with to someone else drafting your documents.

What an operating agreement governs

An operating agreement is where the members of an LLC put their actual deal in writing, rather than relying on generic default rules. A complete agreement typically addresses:

• Whether the LLC is run by its members directly or by appointed managers, and who has authority to bind the company
• Each member’s capital contribution, and how additional capital gets raised if the business needs it
• How profits, losses, and distributions are allocated among the members
• Which decisions require a simple majority, a supermajority, or unanimous consent
• Restrictions on transferring a membership interest, including rights of first refusal
• Buy-sell provisions covering an owner who leaves, dies, or becomes disabled
• How a deadlock between owners gets resolved

This page covers LLCs specifically. If your business is organized as a corporation rather than an LLC, our shareholder agreements service covers the same ground for shareholders instead of members.

New York requires a written operating agreement

New York’s LLC law requires the members of a New York LLC to adopt a written operating agreement. The requirement applies to every New York LLC, including one with a single member, and it sits alongside the broader body of ownership and governance rules that determine how an LLC is actually run. New York’s law does not dictate most of the substance the agreement has to contain, which is what gives owners the room to structure management, money, and decision-making around how they actually intend to run the business.

When an LLC never adopts an agreement, or relies on a free or generic template instead of one written for the business, the state’s default rules fill the gap. Those defaults apply the same way to every LLC regardless of what the owners intended, and often do not match how profits are actually split, who can act for the company, or what happens if an owner wants out. A generic template can satisfy the requirement on paper without addressing the ownership structure, capital arrangement, or succession plan the business actually needs, and the gaps tend to surface at the worst possible time: during a dispute, a buyout, or after an owner has died. Our LLC formation service includes a custom operating agreement for this reason, and we also draft or replace one for an LLC that is already running.

Member-managed vs. manager-managed LLCs

Every LLC operating agreement has to establish who actually runs the company. New York law allows either structure, and the agreement is where the choice gets made and documented.

In a member-managed LLC, the members run the business directly, and each member generally has authority to act and sign for the company unless the agreement limits it. It fits smaller companies where the owners are also the operators. In a manager-managed LLC, the members appoint one or more managers, who may or may not also be members, to run daily operations, while the members vote on the major decisions the agreement defines. It fits a company with passive investors, a larger ownership group, or owners who want management kept separate from ownership.

Ownership, money, and decisions

Capital contributions

The agreement records what each member contributed to form the company, whether cash, property, or services, and sets the terms for raising more money later if the business needs it. Without clear terms, members can disagree over whether anyone must contribute more, how ownership shifts if only some members put in additional capital, and what happens to a member who cannot or will not contribute their share.

Allocating profits, losses, and distributions

Profits, losses, and distributions do not have to track ownership percentages exactly, and many agreements split them differently, for reasons tied to who contributed capital, who contributes labor, or how the owners have agreed to share risk. The agreement should also state when distributions happen and who decides, since a company can be profitable on paper while still needing to hold cash back for operations or taxes.

Voting thresholds and unanimity

Routine decisions typically need only a majority vote of the members, but the agreement should identify which decisions require a supermajority or unanimous consent, such as admitting a new member, taking on significant debt, selling company assets, or amending the agreement itself. Setting these thresholds in advance keeps one member from controlling every decision, or blocking one most owners support.

Transfers, buyouts, and deadlock

Transfer restrictions and rights of first refusal

Without restrictions in the agreement, a member may be free to sell or transfer their interest to an outsider the other owners never agreed to work with. Most agreements restrict transfers and give the remaining members a right of first refusal, the chance to buy a departing member’s interest on the same terms offered by an outside buyer, before that interest can go to someone new.

Buy-sell provisions

A buy-sell provision sets out what happens when an owner leaves the business, dies, or becomes disabled: whether the remaining members or the company must, or may, buy out that interest, how it gets valued, and how payment is structured. Addressing this in advance keeps a departure, a death, or a disability from turning into a dispute over what the departing owner’s share is actually worth. These provisions also matter if the business itself is later sold, an event our buying or selling a business service handles alongside the agreement’s terms.

Resolving a deadlock

When ownership is evenly split, or a decision requires unanimous consent and the members cannot agree, a business can reach a genuine standstill. A deadlock provision sets out how that gets resolved, through mediation, a buyout of one side by the other, or another mechanism chosen in advance, rather than leaving a stalled company with no way forward except a costly dissolution.

Single-member LLCs still need an agreement

An owner running an LLC alone might assume an operating agreement is unnecessary, since there is no co-owner to disagree with. New York’s requirement applies regardless of member count, and the agreement still does real work for a single-member LLC. It documents that the business is a distinct legal entity operating under its own rules, not simply its owner conducting business under another name, which supports the separation between personal and business liability that forming the LLC was meant to create. It also lets a single owner set out what happens to the business if they become disabled or die, rather than leaving that question unanswered.