Many small business owners form an LLC to protect their personal assets and gain flexibility. Having an operating agreement is an important step that helps guide the way the LLC runs.
Some people skip this step during formation. Others use a generic template that does not fit their specific needs. The good news is that it is not too late to create a proper operating agreement.
Why should you write an operating agreement?
An LLC’s operating agreement is a document that explains how members make decisions, share profits and handle disputes. Indiana law does not require an LLC to file an operating agreement with the state. However, Indiana Code § 23-18-4-4 encourages every LLC to create one.
This document acts like a contract between the members. It helps avoid confusion and protects the business from internal disagreements. Even if an LLC has already started operating, the members can still draft or update an agreement.
What happens if you do not have an operating agreement?
Without a proper operating agreement, the LLC must follow Indiana’s default rules. These rules may not match the goals or structure of your business. For example, state law splits profits equally among members unless the operating agreement says otherwise. That can create problems if one member works more hours or invests more money than another. A good agreement allows members to make custom rules that fit their situation.
An operating agreement also protects the LLC’s limited liability status. If members mix business and personal matters or fail to follow formal processes, a court could remove that protection. A written agreement shows that the LLC is a separate legal entity.
Creating or updating an operating agreement helps keep the LLC strong. It brings clarity, protects the members and builds trust among the team. Even if the business has been running for years, the members can still take this step. Indiana law allows flexibility, so it is never too late to do it the right way.
