LLC Operating Agreements: What Yours Should Actually Say

You filed the Articles of Organization. You got the EIN. Someone downloaded an operating agreement template from the internet, everyone signed it, and it went in a drawer. Now one of your members wants out, and you're reading the agreement for the first time since formation—discovering it doesn't actually address what to do.

This is the most common scenario we see. The LLC was formed in a rush, the operating agreement was treated as a formality, and the provisions that seemed fine when everyone agreed turn out to be useless when everyone doesn't.

What the Operating Agreement Does

An operating agreement is a contract among the LLC's members that governs how the business operates. It addresses ownership, management, finances, decision-making, and exit—all the questions that arise when multiple people own a business together.

In Oklahoma, LLCs without a written operating agreement are governed by the Oklahoma Limited Liability Company Act's default rules. Those defaults assume things about your business that may not be true. They divide profits equally regardless of contribution. They give every member equal management authority. They make dissolution difficult without consent.

The operating agreement lets you choose different rules—rules that reflect how you actually want the business to work.

Where Templates Fail

Generic templates address the existence of an LLC but not the reality of yours. They include required boilerplate but leave blank the provisions that matter in disputes.

Who decides if the business takes on debt? The template says "members" without specifying how members vote or what happens if they disagree.

What if someone stops showing up? The template has no mechanism for removing a non-contributing member or adjusting their ownership.

What's the buyout price if someone wants to leave? The template says "fair market value" without defining how to determine it, who pays for valuation, or when payment is due.

These gaps don't matter when everyone's happy. They become enormous when someone isn't.

Provisions That Actually Matter

Management structure determines who can make binding decisions. In a member-managed LLC, every member has authority to act for the company. In a manager-managed LLC, only designated managers do. Multi-member LLCs often need detailed provisions about which decisions require member votes, what majorities are needed, and how deadlocks are resolved.

Capital contributions should be documented clearly—who put in what, whether further contributions are required or optional, and what happens if someone doesn't contribute what they promised. Capital accounts should track these contributions and their impact on ownership.

Profit and loss allocation may not be equal. One member may contribute more capital; another may contribute more labor. The agreement should reflect whatever deal the members actually made, including draws, guaranteed payments, and distribution timing.

Buyout provisions are frequently the most important terms in the agreement. They address what happens when a member dies (life insurance? family buyout rights?), becomes disabled (right to redemption? right to continue?), wants to leave (right to sell? right of first refusal? valuation method?), or needs to be removed (for cause? deadlock? what procedure?).

Transfer restrictions determine whether members can sell their interests to outsiders. Most LLCs don't want new members chosen by existing members' creditors or ex-spouses. Rights of first refusal and approval requirements protect against unwanted ownership changes.

Exit and dissolution provisions determine what happens if the business winds down. Who decides to dissolve? How are assets distributed? What happens to ongoing contracts and liabilities?

Getting Valuation Right

Buyout valuation creates more disputes than almost any other operating agreement issue. "Fair market value" sounds clear but isn't—fair market value according to whom, determined how, as of when?

Some agreements specify formulas: book value, multiple of earnings, percentage of revenue. These provide certainty but may not track actual value over time.

Some agreements require appraisal by a qualified valuation expert. This is more accurate but more expensive and still leaves room for dispute about methodology.

Some agreements let the remaining members set the price, subject to the departing member's right to demand an appraisal if they disagree. This creates efficiency incentives while preserving fairness.

Whatever method you choose, the agreement should also address timing—when payment is due, whether it can be made in installments, what security protects the departing member's right to be paid.

Fiduciary Duties and Standards

Oklahoma law imposes fiduciary duties on LLC managers, but the operating agreement can modify those duties within limits. Some agreements limit liability for ordinary negligence. Some require heightened standards for major transactions. Some define specific conduct that does or doesn't breach the duty of loyalty.

These provisions matter when someone alleges a manager acted improperly. The agreement defines what "properly" means.

The Process of Getting This Right

Creating a good operating agreement requires understanding how the members actually want the business to operate, what risks they face, and what disputes might arise.

This means conversations about scenarios nobody wants to contemplate: What if we disagree about whether to sell? What if one of us gets divorced? What if someone wants to bring in a son-in-law as a new member? What if the business is losing money and needs capital nobody wants to contribute?

The agreement should be drafted to answer these questions in ways that reflect the members' actual deal—not generic defaults that might apply to some hypothetical LLC but don't fit yours.

And the agreement should be reviewed periodically. Businesses change. What made sense at formation may not make sense five years later. Operating agreements can be amended by member consent, and sometimes should be.

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Your operating agreement is the constitution of your business. It determines how decisions get made, how money gets divided, and what happens when things go wrong. Getting these provisions right is worth far more than most people realize when they're downloading templates and checking boxes.

At Addison Law, we help Oklahoma business owners structure LLCs with operating agreements that address real scenarios—not just formation requirements. If you're forming a new LLC or need to review an existing agreement, contact us.

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This article is for general information only and is not legal advice.