Your LLC is a sep­a­rate per­son. So how does it make deci­sions? Who feeds Mr. LLC? What hap­pens to the money Mr. LLC earns and the assets he owns?

The answer—the oper­at­ing agree­ment. It’s just a writ­ten agree­ment between the own­ers of the LLC to set­tle these mat­ters. The peo­ple who own Mr. LCC (called the mem­bers) are the LLC’s brain. With­out a brain you can’t sur­vive and make deci­sions. They make its deci­sions and act on its behalf.

The oper­at­ing agree­ment includes things about Mr. LLC’s money, assets, mem­ber­ship, and day-to-day deci­sion mak­ing. It includes how Mr. LLC’s big deci­sions are made, how his records are kept, what his stan­dards are, and how to resolve dis­putes. It can also include what hap­pens when a mem­ber dies, is dis­abled, goes bank­rupt, or gets divorced.

The mem­bers don’t have to have an oper­at­ing agree­ment to do this. If the mem­bers don’t have an oper­at­ing agree­ment, then Alaska’s LLC statutes will decide how the brain func­tions. But if you want to con­trol how the brain func­tions, then you’ll need an oper­at­ing agreement.

There’s another aspect to con­sider. The process of nego­ti­at­ing an oper­at­ing agree­ment is a great way to set everyone’s expec­ta­tions up front. It can help avoid sur­prises down the road. It’s like a prenup­tial agree­ment for the mem­bers and it’s a whole lot eas­ier to agree on things when every­one is happy and still in the hon­ey­moon period, than when every­one is mad at each other. Remem­ber, you’re not locked into the agree­ment. The mem­bers can always agree to change the oper­at­ing agree­ment as time goes on.

Do you still need an oper­at­ing agree­ment if you’re the only mem­ber? If you’re the only mem­ber of the LLC, then you’re the one mak­ing all the deci­sions. But if you don’t have an oper­at­ing agree­ment, the default rules still apply to you. Some­times you’ll have to show lenders and land­lords your oper­at­ing agree­ment. The oper­at­ing agree­ment also helps ensure that your legal, tax, and finan­cial struc­tures are in place. An oper­at­ing agree­ment serves as a good guide­book to main­tain Mr. LLC. So it’s not a bad idea to have an oper­at­ing agree­ment even if you’re the only member.

Finally, when it comes to oper­at­ing agree­ments, there is no one-size-fits-all solu­tion because there are many dif­fer­ent types of LLCs. It’s like get­ting a suit or a dress. When you walk into a store to buy a suit or a dress, they don’t offer just one size of suit or dress. They have mul­ti­ple suit or dress sizes that work for just about every body type. The same is true with LLCs. You need to make sure your oper­at­ing agree­ment fits you right. There really is no one-size-fits-all solution.