Illinois LLC Operating Agreement

by Phil M. Fowler
An operating agreement is a contract among all the members of the LLC.

An operating agreement is a contract among all the members of the LLC.

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Illinois state statutes 805 ILCS 180 Limited Liability Company Act Sec. 15-5 defines the operating agreement as the agreement concerning the relations among the members, managers, and limited liability company. Illinois statute permits, but does not require, the members of an Illinois limited liability company to enter into an operating agreement. If created, the operating agreement can generally contain any terms and conditions that do not conflict with the Illinois Limited Liability Company Act.

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An operating agreement is always a good idea when the LLC involves more than one member. A good operating agreement should outline all expectations and understandings of the various members of the LLC, including provisions relating to the initial contributions of money, the payout of revenues and income, the growth, transfer, and termination of LLC membership, and the timing and procedure for dissolving the LLC. These agreement terms are critical for any LLC that involves more than one member.


One of the key functions of an LLC operating agreement is to define how money flows in and out of the LLC. The operating agreement should include, for example, provisions relating to capital contributions, or start-up seed money, provided by each member. It should also include any requirements for members to contribute additional funds, either by loan or equity investment, at any time in the future. Finally, the operating agreement ought to spell out how and when each member receives compensation, including whether any member will also be an employee; it should include how and when the LLC will distribute profits to the members.


The Illinois Limited Liability Company Act allows LLCs to be either member-managed or manager-managed. In other words, the owners, who are called members, can manage the company themselves, or hire a manager to run the company. Passive investors in an LLC, for example, may require the involvement of a professional manager. The structure of the operating agreement will depend on whether the LLC is member-managed or manager-managed. At the very least, the operating agreement needs to identify which management structure will govern, and if a manager is needed. The operating agreement should identify the manager and include any limitations on the manager's authority.

Membership Provisions

The operating agreement is where the members memorialize any agreements relating to the creation of new membership interests, the assignment or transfer of membership interests, and any buyout provisions relating to membership interests. The Illinois Limited Liability Company Act does not impose any specific requirements on the membership provisions in an operating agreement; this is negotiable among the various members of the LLC.