An operating agreement is a key document used by limited liability companies (LLCs) to outline the business' financial and functional decisions including rules, regulations and provisions.
Once the document is signed by the members of the limited liability company, it acts as an official contract binding them to its terms.
An operating agreement is mandatory as per laws in only 3 states: California, Missouri, and New York.
In single-member LLC, an operating agreement is a declaration of the structure that the member has chosen for the company and sometimes used to prove in court that the LLC structure is separate from that of the individual owner and thus necessary so that the owner has documentation to prove that he or she is indeed separate from the entity itself.
The operating agreement usually includes percentage of interests, allocation of profits and losses, member's rights and responsibilities and other provisions.