Operating Agreement LLC Illinois

Starting a Limited Liability Company (LLC) in Illinois requires several steps, and one of the most important internal documents is the Operating Agreement. This contract explains the company’s ownership, management structure, and operating rules. It supports clear governance and helps members understand their rights and responsibilities.

Is an Operating Agreement Required in Illinois

No. Illinois does not require LLCs to adopt an Operating Agreement. Under Section 15-5 of the Illinois Limited Liability Company Act, an LLC may have an agreement but is not mandated to.

If no agreement is created, the LLC must follow Illinois’ default rules under 805 ILCS 180/1 et seq. These rules include a member-managed structure and equal voting rights for all members, regardless of capital contributions (805 ILCS 180/15-1). An Operating Agreement allows members to customize or override these defaults.

Why an Operating Agreement Matters

Protects limited liability A written agreement helps show that the LLC operates as a separate legal entity. This supports limited liability and reduces the risk of veil piercing, which is especially important for single-member LLCs.

Builds credibility Banks, lenders, and business partners often ask for an Operating Agreement before opening accounts or conducting business.

Reduces disputes Clear rules for voting, management, withdrawals, and profit allocation can prevent misunderstandings among members.

Allows customized management The agreement lets members choose a manager-managed structure or create unique rules that are not provided under default Illinois law.

Key Provisions to Include

A complete Illinois Operating Agreement often includes:

• Basic company details: Name, purpose, duration, and registered agent address
• Member information: Names, addresses, and ownership percentages
• Capital contributions: Initial investments made by members
• Management structure: Member-managed or manager-managed
• Profit and loss allocation: How financial results are divided among members
• Tax election: Disregarded entity, partnership, S corporation, or C corporation
• Voting procedures: Voting power, decision thresholds, and quorum rules
• Transfers of interest: Processes for admitting, withdrawing, or transferring members
• Records and bookkeeping: How business records will be kept
• Compensation: Payment rules for members or managers
• Dissolution: Events that trigger winding up and how assets are distributed
• Amendments: How changes must be approved

Management Options

Member-managed (default): All members participate in daily operations and may bind the LLC.

Manager-managed: Members appoint one or more managers who handle daily operations. Members retain authority over major decisions only.

Creating and Maintaining the Agreement

Drafting and signing: Members may draft the agreement themselves or use legal assistance. Signatures are recommended but not required. Notarization is also not required.

Recordkeeping: The agreement is an internal document and is not filed with the Illinois Secretary of State. It should be kept with company records, since courts, lenders, or tax authorities may ask to review it.

Amending the agreement: Members may amend the agreement by following the process it describes. Under 805 ILCS 180/15-5(c), amendments require unanimous consent unless the Operating Agreement states a different method. If an amendment affects information filed with the Secretary of State, such as the management structure, the LLC must update its Articles of Organization.