Operating Agreement LLC Delaware

A Delaware Limited Liability Company (LLC) Operating Agreement is an internal document that describes how the business will operate. It establishes ownership rights, explains management authority, and sets the procedures members must follow in running the company. Some refer to it as a Delaware Operating Agreement or Delaware LLC Company Agreement. Regardless of the term used, it serves as the primary internal governance document for the LLC.

Many LLCs adopt this agreement at the time of formation, while others create one later. The Operating Agreement is not filed with the state and is kept within the LLC’s internal records.

Is a Delaware Operating Agreement Required?

Delaware does not require an LLC to maintain an Operating Agreement. Under the Delaware Limited Liability Company Act, the agreement may be written, oral, or implied. Although optional, a written Operating Agreement is strongly recommended. Without one, the LLC defaults to Delaware’s statutory rules, which may not match the members intended structure.

Why a Delaware Operating Agreement Matters

Maintains limited liability protection

A written Operating Agreement helps establish that the LLC operates separately from its owners. Courts may review internal documentation when assessing limited liability protections. A written agreement is especially helpful for single member LLCs.

Provides control under Delaware's flexible LLC laws

Delaware offers substantial contractual freedom in drafting Operating Agreements. A written document allows members to take full advantage of this flexibility by defining decision making processes, financial rules, and management structures.

Required by financial institutions and professional advisers

Banks, lenders, accountants, and attorneys routinely request a copy of the Operating Agreement to verify ownership, confirm authority, and ensure proper governance.

Supports Delaware Series LLC structures

Delaware was the first state to authorize Series LLCs, which allow separate divisions with independent assets and liabilities. A written Operating Agreement is essential for establishing and maintaining individual series.

Key Provisions to Include in a Delaware Operating Agreement

Basic Company Details

• LLC name
• Description of business purpose
• Principal office address
• Duration of the LLC
• Federal tax classification

Delaware requires the name to include Limited Liability Company, LLC, or a similar abbreviation.

Registered Agent and Office

• Name and Delaware address of the registered agent
• Procedures for changing the registered agent
• Filing requirements with the Delaware Division of Corporations

Member Information

• Names and addresses of all members
• Ownership percentages
• Initial capital contributions

Capital Contributions

• Description of contributions made by each member
• Terms for additional contributions
• Statement that contributions do not accrue interest unless agreed

Management Structure

• Whether the LLC is member managed or manager managed
• Duties, authority, and responsibilities assigned to members or managers
• Procedures for appointing or removing managers

Profit and Loss Allocation

• Allocation of profits and losses
• Conditions and frequency of distributions
• Confirmation that distributions must not impair the LLC's ability to meet its obligations

Tax Election

• Federal tax classification chosen by the LLC
• Statement that certain tax elections require IRS filings

Voting Procedures

• Voting rights of members
• Quorum standards
• Thresholds for approving decisions

Unless modified, many Delaware LLCs default to proportional ownership voting.

Transfers of Interest

• Rules governing transfer of membership interests
• Admission procedures for new members
• Treatment of interests if a member withdraws, dies, or is expelled

Records and Bookkeeping

• How financial records, reports, and documents will be maintained
• Identification of who is responsible for company books
• Note that Delaware does not require an annual report for LLCs, but franchise tax obligations still apply

Compensation

• Rules for compensating members, managers, or officers
• Reimbursement of business expenses

Dissolution

• Events that may trigger dissolution
• Winding-up procedures
• Filing a Certificate of Cancellation with the Delaware Division of Corporations

Amendments

• Procedures for revising the Operating Agreement
• Requirement for written approval unless otherwise specified

Management Options for Delaware LLCs

Member Managed

Members take part in daily operations and have authority to act on behalf of the LLC. This structure is common for smaller companies. Voting rights typically follow ownership percentages unless modified.

Manager Managed

Members appoint one or more managers to run daily operations. Managers may be members or outside individuals. Members retain authority over major decisions while delegating routine responsibilities.

Creating and Maintaining the Delaware Operating Agreement

Drafting and Signing

The Operating Agreement becomes effective when adopted by the members. Delaware recognizes written, oral, and implied agreements, but a written version provides clarity and helps prevent disputes.

Recordkeeping

Members should store a copy of the agreement with the LLC’s permanent records. While Delaware does not require an annual report for LLCs, proper documentation is important for tax compliance and internal governance.

Amending the Agreement

Members may modify the agreement according to the procedures specified in the document. If amendments affect information filed with the state, such as the registered agent, the LLC must notify the Delaware Division of Corporations.