Free Illinois LLC Operating Agreement
Your operating agreement is the legal blueprint for how your Illinois LLC functions internally. It’s a legally binding contract between LLC members and determines how your LLC will handle important processes, including voting, transfers of membership interest, allocating profits and losses, and dissolution.
Unlike the Illinois Articles of Organization, your operating agreement is an internal document that you aren’t required to file it with the Secretary of State. However, we can’t overstate the importance of having a strong operating agreement. Since we know how intimidating creating an operating agreement can be for a new business owner, Northwest offers free, attorney-drafted operating agreement templates that you can customize to fit your Illinois LLC.
Why should an Illinois LLC have an operating agreement?
An Illinois LLC should have an operating agreement because a company cannot act for itself. In order to operate, LLCs require real humans (and other entities) to carry out company operations.
Illinois state law doesn’t require an operating agreement. Illinois statute § 805 ILCS 180/15-5 states that LLC members may enter into an operating agreement but doesn’t require them to do so. Just because an operating agreement isn’t required by law doesn’t mean it’s not important. An operating agreement performs many essential functions for an Illinois LLC. Here are a few of them:
1. An operating agreement is required to open a business bank account.
Most banks require you to show your operating agreement to open a company bank account. Having a business bank account is crucial for keeping business and personal finances separate.
2. An operating agreement can help reinforce your limited liability status.
In order to qualify for limited liability status, an LLC must be able to show that it is a legally separate entity from its owners. Since your operating agreement outlines the rules and procedures your LLC follows, it can help you prove that your LLC is a distinct legal entity. If your LLC is ever taken to court, a strong operating agreement could make all the difference in your case.
3. An operating agreement can help your members resolve their differences.
Occasional conflict is a natural part of doing business with other people, but you want to be able to resolve conflicts quickly and fairly. Because your operating agreement has already been agreed upon by all members and details how you will proceed in a variety of situations, it can help when your members are in disagreement.
4. An operating agreement can override Illinois’s default laws.
Anything you don’t cover in your operating agreement will be governed by the Illinois Limited Liability Company Act. The rules in this Act might not be the best fit for your company. A personalized operating agreement will give you more say in how your LLC functions.
Illinois Case Law
We asked our lawyers for an example of how an operating agreement can make or break your LLC. Here’s what they said.*
“Consider the case of Daniel v Ripoli where the intent of the LLC members was upheld and enforced by the courts, despite a third-party injecting themselves into the affairs of the LLC and demanding payment of funds to a deceased member’s estate. Because the members distilled their understanding into an updated and amended operating agreement, the courts preserved the amended LLC operations, despite outside parties asserting and demanding a conflicting result. For these reasons, inter alia, it is important to not only adopt a written operating agreement, but it is also important to maintain an operating agreement for your LLC.”
What is included in a Illinois LLC Operating Agreement?
Your Illinois operating agreement should address how your LLC will tackle the major issues you’re likely to face. Technically, almost anything can be included in your operating agreement, as long as it doesn’t run counter to Illinois state law. But you should definitely cover at least these topics:
- Membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Bookkeeping procedures
Illinois statute § 805 ILCS 180/15-5 forbids you from including certain provisions in an operating agreement, like restricting a member’s access to company records.
Is an operating agreement required in Illinois?
There is no Illinois state law requiring an LLC to adopt an operating agreement. However, an operating agreement will help your LLC resolve disputes, open a bank account, and protect your limited liability status.
Do I have to file my operating agreement in Illinois?
No. Because an Illinois operating agreement is an internal document, it does not need to be filed with the state. However, Illinois statute 805 ILCS 180/1-40 requires your LLC to keep any current operating agreement you have on file at your place of business or in another location specified in your operating agreement.
Does a single-member LLC need an operating agreement?
Yes. While it might seem weird to draft a legal agreement with yourself, operating agreements are essential for single-member LLCs. Why? If your LLC faces a lawsuit, an operating agreement is crucial for showing that your business is a separate legal entity with limited liability protection. Without an operating agreement, a single-member LLC can look perilously similar to a sole proprietorship—a business structure without limited liability status.
*This is informational commentary, not advice. This information is intended strictly for informational purposes and does not constitute legal advice or a substitute for legal counsel. This information is not intended to create, nor does your receipt, viewing, or use of it constitute, an attorney-client relationship. More information is available in our Terms of Service.