Wondering what an operating agreement is? Here’s why every LLC—yes, even single-member ones—needs this essential legal document.
Whether you’re a solo entrepreneur or working with partners, this foundational document outlines exactly how your LLC operates. It safeguards your personal assets, clarifies ownership, and helps avoid internal disputes. Without it, you could face serious legal and financial risk.
What Is an Operating Agreement?
An operating agreement is a legal document that defines how your Limited Liability Company (LLC) functions. It acts as your LLC’s internal playbook. Specifically, it covers:
- Ownership structure
- Daily management roles
- Profit distribution
- Voting and decision-making procedures
- Exit or transfer scenarios (death, sale, or departure)
Banks, courts, investors, and business partners often ask for this document. And even if you’re the only member, having this agreement shows your LLC is legitimate and structured.
What Should Be in One?
A strong operating agreement should include the following components:
- Ownership percentages: Who owns what share of the business
- Management responsibilities: Who makes decisions and oversees operations
- Profit and loss allocation: How money gets distributed or reinvested
- Voting rights: How decisions get made, especially for multi-member LLCs
- Exit strategy terms: What happens if someone exits the business
- Dispute resolution methods: How internal conflicts are managed
- Dissolution plans: What occurs if the business closes or is sold
Including these sections ensures your business stays organized and prepared for change.
5 Reasons Every LLC Needs This Agreement
- It Protects Your Personal Assets: Your LLC’s liability protection depends on having the right legal structure. Without an operating agreement, courts might “pierce the veil” and hold you personally responsible for business obligations.
- It Prevents Internal Disputes: When multiple people are involved, unclear roles and expectations often create conflict. A detailed operating agreement aligns everyone from day one.
- It Confirms Business Legitimacy: Banks, landlords, and potential investors usually require an operating agreement. If you don’t have one, you might lose out on loans, leases, or funding opportunities.
- It Prepares You for the Unexpected: What if a partner wants to exit? Gets divorced? Passes away? A well-written agreement gives you a roadmap during high-stress events.
- It Simplifies Growth and Exit Plans: Whether you’re opening another location, bringing on investors, or preparing to sell, an operating agreement helps protect your company’s valuation and reputation.
Common Operating Agreement Mistakes
- “I don’t need one—I’m the only owner.”
Even single-member LLCs need protection. Courts often view them as more vulnerable without proper documentation. - “I used a free template online.”
Most templates miss critical details for fitness businesses, like coach management or liability issues. - “We’ll deal with it later.”
That mindset invites risk. Set terms now, before conflicts arise—not during them.
Final Thoughts: Don’t Skip This Essential Legal Tool
If you own or co-own a gym under an LLC, your next move is to create or review your operating agreement. It’s more than paperwork—it’s the structure that protects your time, your money, and your future.
At Gym Lawyers PLLC, we draft custom agreements tailored to your ownership model, expansion plans, and industry needs.
Not sure if your operating agreement is solid?
[Let us take a look—we’re here to help.]
