Operating Agreement

• When members decide to create an LLC, one of their first pieces of business is typically the creation of an agreement, one that details more or less everything about how the proposed LLC will operate. This agreement is known as the operating agreement, or membership agreement. Ideally, the agreement will give explicit detail on each member's ownership interest in the LLC, and the rights and duties entailed by that interest. Each owner of the LLC must sign this agreement.
  
  

Typical Ownership

• Most LLCs operate in a manner similar to that of a partnership. Instead of partners, an LLC will typically have "members," each of whom hold some ownership interest in the LLC. Members usually divide all profits and losses among themselves, although the proportion of the division may be modified by the operating agreement, or influenced by the capital amount each partner contributed to the LLC.
  
  

Governing Law

• In cases in which the operating agreement is flawed or otherwise inoperable, state law may control the LLC. However, the LLC is a recent business form and therefore hasn't generated that much case law yet. Due to the ownership similarity between LLCs and partnerships, many states fill in the gaps using partnership law.
  
  

Member Management

• LLCs often have two types of ownership interests. An owner may be a simple member, who contributes capital and shares profits and losses, but does not get involved with the running of the business. But some LLCs also have member-managers, who actively helps to manage the LLC's operation. Member-managers may have certain ancillary rights that other members don't have; again, these rights are typically spelled out in the operating agreement.
  
  

Voting

• Most LLCs' operating agreements grant each member of the LLC an equal vote in matters affecting the LLC. Should the operating agreement fail to define the voting rights of each LLC member, many states will apply partnership law and grant each member an equal right anyway. However, some states' partnership laws will look at how much of the LLC each member owns in order to decide how much of a proportional voting right that member should have.
  
  

Transferability of Interest

• Transferability of ownership interest in an LLC is another matter typically addressed in the operating agreement. In practice, LLC ownership interests are usually freely transferable via sale, gift or other means. However, in many states, a majority of the other members must approve the transfer before it takes effect. When member-managers decide to transfer their interests, the transfer usually involves only the ownership interest (share of profits and losses), not the right to manage the LLC or vote.