Do LLCs Have Bylaws or Operating Agreements?

By Stephanie Kurose, J.D.

Do LLCs Have Bylaws or Operating Agreements?

By Stephanie Kurose, J.D.

A limited liability company (LLC) is not required to have bylaws. Bylaws, which are only relevant to businesses structured as corporations, include rules and regulations that govern a corporation's internal management. This includes shareholders, directors, and officers. Alternatively, LLCs create operating agreements to provide a framework for their businesses. Some states require it, but even in states that do, it is highly recommended that these entities create an operating agreement.

Folder with post it notes on it and paper clips on it and the words "operating agreement" prominently displayed

LLC Defined

This type of business structure is one of the most common types of business structures. It combines all of the positive attributes of a partnership and corporation. Specifically, it provides the flexibility of a partnership with the liability protection offered by a corporation.

One of the reasons these businesses are so popular is that the owners, called members, are personally protected—except in very narrow circumstances—from any liability that falls on the company. Thus, members cannot be held personally liable for any debt or legal troubles.

The Operating Agreement

An operating agreement is a legal document that provides an outline of ownership and responsibilities. It is one of the most important documents an LLC creates. While there is no formal structure for an operating agreement, it typically covers:

  • Each member's percentage of ownership
  • Members' rights and duties
  • Voting powers
  • Management details
  • Membership changes
  • Dissolution

Most states, even those requiring the creation of an operating agreement, do not require such businesses to formally file their operating agreement with the state agency that regulates businesses, often the Secretary of State. The company should keep this document in a safe place with other important business records and give a copy to every member.

Advantages of an Operating Agreement

Again, if an operating agreement is not required in the state where your company does business, it is a good idea to create one. One of the advantages of having an operating agreement is that it takes precedence over the state's default rules. This means that you as an owner can dictate on its own terms how it wants to manage its internal organization if it creates an operating agreement. If a company does not have an operating agreement, it must conform to the state's default LLC laws. And if you own and operate a business with multiple members, then this could cause legal complications down the line.

If you operate a multiple-member entity (with more than one owner), an operating agreement helps prevent misunderstandings and minimize conflicts that may arise by setting clear rules and expectations about the roles of each member. If your company is a single-member LLC (you are the sole owner), an operating agreement can help legitimize your business by adding a certain level of credibility. It can also help ensure that a court upholds the limited liability status of your company.

It is recommended that you create an operating agreement as soon as you form an LLC. Oftentimes, this document is requested by banks when you go to open a business account, lenders when you are trying to obtain financing, potential business investors or partners, and attorneys or accountants.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.