When you start an LLC with a partner or a relative, everyone usually agrees on the big picture. The harder questions come later: who decides, who gets paid and what happens if someone wants out. An operating agreement is how owners settle those questions, so it helps to know what Pennsylvania requires and what it leaves up to you.
Pennsylvania does not require a written operating agreement
In Pennsylvania, an operating agreement is the agreement among all of an LLC’s owners, called members, and it can be written, oral or implied. The state does not require a written one, but the choice matters.
If your agreement does not cover a topic, the state’s default rules fill the gap, and those rules were written for every LLC in Pennsylvania, not for your business. A written agreement lets you replace the defaults with terms that fit your company.
A strong agreement covers ownership, management and money
A good agreement begins with who owns what and what each owner contributed. It then says who runs the company. Unless the agreement says otherwise, an LLC is member-managed, so every member has an equal say. A majority decides ordinary matters, while unusual decisions need everyone’s agreement. An agreement can also name managers to run daily operations.
The agreement also addresses money. By default, the state divides distributions in equal shares among members, even if one owner put in more, and members do not receive pay for their work unless the agreement provides it.
Plan for owners who leave or disagree before it happens
Many disputes in family and partner-owned businesses involve someone leaving. Under the default rules, an owner can withdraw at any time, and a former owner or a deceased owner’s estate generally keeps only the right to share in distributions, with no say in running the company.
An agreement can set a buyout price, limit who may buy a share, explain what happens when an owner dies or becomes disabled, and require mediation before a dispute reaches court. Without a plan, a serious deadlock can end with a judge deciding whether to dissolve the company.
Getting legal guidance on your operating agreement
Pennsylvania lets owners customize most terms, but not all of them. An agreement cannot, for example, eliminate the basic duties owners owe the company, though it can adjust them within limits. It also cannot unreasonably restrict a member’s right to see company records or to sue to protect their rights.
A template cannot tell you whether the terms fit your business, your co-owners and your plans. An attorney who handles business law can review your ownership, management and exit terms, explain which Pennsylvania defaults you may want to change and help you put the agreement in writing.
Every business is different, but a customized agreement may help protect your company’s operations and finances under Pennsylvania law.