How to Write an Operating Agreement for Multiple Members

Draft a multi-member LLC operating agreement covering ownership, management, distributions, and exit procedures.

  1. Define ownership percentages and capital contributions. Document each member's initial cash or asset contribution and corresponding ownership percentage. Include the valuation method for non-cash contributions like equipment or intellectual property. Specify whether future capital calls will be mandatory or optional, and how ownership dilutes if members can't contribute.
  2. Establish management structure and voting rights. Choose between member-managed (all owners participate) or manager-managed (designated managers run operations). Set voting thresholds for major decisions — typically 51% for routine matters, 75% for major changes like asset sales or new debt above $50,000. Define which decisions require unanimous consent, such as admitting new members or dissolving the LLC.
  3. Set profit and loss distribution rules. Establish how profits and losses flow to each member — usually proportional to ownership percentages but not always. Specify the timing and frequency of distributions, such as quarterly or after year-end tax calculations. Include provisions for retaining cash for operations and growth before making distributions.
  4. Create member exit and transfer procedures. Define triggering events for buyouts: voluntary departure, death, disability, or termination for cause. Set the valuation method — book value, multiple of earnings, or third-party appraisal. Establish payment terms, typically 12-36 months, and include right-of-first-refusal clauses requiring departing members to offer their interest to remaining members before outside buyers.
  5. Include tax elections and administrative details. Specify the LLC's tax classification — default partnership taxation or S-corp election if eligible. Assign responsibility for tax filings, bookkeeping, and K-1 distribution to members. Set the fiscal year and require annual member meetings to review financials and vote on major business decisions.