An operating agreement is the contract between the owners of a business. A partnership uses a partnership agreement and a corporation uses bylaws and a shareholder agreement, but the purpose is the same.
Why it matters more than the formation filing
Forming an entity creates it. The operating agreement governs how it is run, and that is where disputes actually arise.
Without one, the default rules of the state apply. Those rules are generic, and they are rarely what the owners would have chosen — commonly including equal decision rights regardless of ownership percentage, and no mechanism for removing anyone.
What it should settle
Ownership, and what each owner contributed to get it: money, equipment, or work.
Decisions. Which need unanimous agreement, which a majority, and which the person running the business can take alone. Without this, everything is negotiable and the business stalls on ordinary matters.
Profit. How and when distributions are made, and how much is retained. Owners who want money out and owners who want to reinvest is the most common source of conflict.
Work. What each owner is expected to do, and what they are paid for it. An owner working full time alongside one who is passive, both on equal shares, is a grievance forming.
Deadlock. How a disagreement between equal owners is resolved. Two owners at fifty per cent each with no tie-breaker can bring the business to a stop entirely.
Exit. What happens when an owner wants to leave, dies, becomes unable to work, divorces, or is removed — see buy-sell agreements.
Single-owner businesses
A single-member company still benefits from one. It evidences that the business is genuinely separate from its owner, which is part of what preserves liability protection — see separating business and personal money.
When to write it
At the start, while everyone is agreeable and nobody knows which clause will favour them.
Written during a dispute, every term becomes a negotiation over the dispute itself.
Getting it right
State law governs what may be varied and what may not. This is a document to have drafted by an attorney, once, rather than assembled from a template.