Guide 34 · Keeping the company alive

Operating agreements in depth: what yours must actually say

Every founder has one; few have read theirs. The operating agreement is the only document that says who owns the company, who may act for it, and what happens when the obvious things go wrong — and it is read most carefully by banks, marketplaces and buyers at the moments you can least afford a gap. Here is what each part does, in the order a reviewer reads it.

On this page

1. Why the private document matters
2. Ownership clauses: members, capital, distributions
3. Management and signing authority
4. Transfers, death and deadlock: the clauses that earn their keep
5. The tax clauses
6. Adopting, storing and amending it
7. Reading is step one. The paperwork is the rest.

Why the private document matters

State law gives an LLC default rules; the operating agreement replaces them with yours. For a domestic founder the defaults are an inconvenience. For a founder abroad they can be a trap: default rules in several states assume members manage together, divide by membership interest in ways a template never intended, or require consents that are impractical across time zones. The agreement is also a private document — unlike the articles, it is not filed with the state — which makes it the safe place to record the ownership facts your Form 5472 will later report to the IRS.

Single-member companies are not exempt. Your agreement is the document a bank's compliance team reads to confirm that the person in front of them (you, on a video call, from another continent) is the person entitled to open the account.

Ownership clauses: members, capital, distributions

• Formation facts: legal name, state, date, EIN once issued — matching the articles character-for-character.
• Members and percentages: every member, their interest, and their address. For a foreign-owned company this clause is the ownership record the 5472 workpapers tie back to.
• Capital contributions: what each member put in — cash amounts, property, services — and whether further contributions can be required. Undocumented contributions become disputed contributions.
• Distributions: when money may leave the company and in what proportions; for foreign owners, the clause your home-country adviser will ask about first.

Management and signing authority

The management clause answers one question: who binds the company? Member-managed puts every member's signature on the company's acts — simple for one member, unworkable for several across borders. Manager-managed concentrates authority in named managers, which suits multi-member companies and any company that will hire US staff. Either way, the agreement should name who may open and operate bank accounts, sign contracts above a stated value, and act with Stripe and marketplaces — because those platforms' verification teams ask, in almost those words. Authority that exists only in practice gets re-proven at every account review.

Transfers, death and deadlock: the clauses that earn their keep

• Transfers: may a member sell or give away their interest? To whom, with whose consent, at what valuation? Silence means the state's default answers.
• Death and incapacity: for a founder abroad this is the clause with real teeth — who steps in, how the successor proves it, and how the bank learns of it. An interest that passes under foreign probate while the US bank freezes the account is the standard disaster.
• Departure and deadlock: buy-out mechanics and a valuation method agreed while everyone is friendly.
• Dissolution: what triggers winding up and who runs it — read alongside our dissolution guide.

The tax clauses

The agreement records the company's tax posture: that a single-member LLC is disregarded for federal purposes unless an election is made, who is responsible for the Form 5472 information (the company, prepared with the owner's facts), and how tax items are handled if the company later elects corporate treatment or takes a second member and becomes a partnership for tax purposes. It should also state plainly that members take their own advice on their home-country tax — the company's document cannot carry the founder's personal position in two systems, and pretending otherwise helps no one. See our treaty guide for why that separation matters.

Adopting, storing and amending it

Adopt it at formation, sign it (electronic signature is fine for a private document), and store it with the articles and the CP 575 — the pack our first-90-days checklist assembles. Amend it when ownership, management or the business's shape changes, in writing, dated. Sethhost's membership includes an operating agreement drafted for the company's actual member structure in the first term; it is a formation document, not legal advice, and a company with outside investors, co-founders in dispute, or a regulated business should have its own attorney review it — the agreement is cheap exactly until the day it is the only evidence of what everyone intended.