New York State LLC Operating Agreement
Your operating agreement is the legal form that lays out the rules, procedures, and structure for your New York LLC. Once all of your LLC’s members have signed it, the operating agreement is a legally binding contract, governing the way you’ll handle issues like voting, membership interest, profits and losses, and dissolution.
The operating agreement is an internal document, so you don’t need to file it with the New York Department of State—BUT every New York LLC is required to have one. Since operating agreements are dense legal documents, we don’t expect most new LLC owners to know how to create one from scratch. That’s why Northwest offers free, attorney-drafted operating agreement templates that are state-specific and can be customized to fit the needs of your New York LLC.
Why should a New York LLC have an operating agreement?
A New York 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.
According to state statute NY LLC L § 417 (2019), members of a New York LLC must adopt a written operating agreement before, at the time of, or within ninety days after filing the New York LLC Articles of Organization. Also, statute NY LLC L § 1102 (2019) requires you to a maintain a copy of your operating agreement, in addition to any amendments.
Even if it were not required by New York law, you’d still want to have a strong operating agreement. Here’s why.
1. Your operating agreement proves you own your LLC.
New York does not require you to list your LLC’s members’ names on the Articles of Organization or biennial report. While this is great for helping you protect your privacy, it makes it harder for you to prove who owns the LLC, which you might need to do when opening a company bank account. Your operating agreement, however, will list all your members’ names and addresses, and can be used to help prove your ownership of the LLC.
2. An operating agreement can help reinforce your limited liability status.
To maintain limited liability, an LLC must be able to prove that it is a separate legal entity from its owners. To show this legal separation, LLCs must abide by certain rules, such as keeping business spending separate from personal spending. Another way to help demonstrate that your LLC is a separate entity is by following the rules and procedures laid out in your operating agreement. If your LLC ever has to deal with a lawsuit, your operating agreement can help strengthen your case.
3. An operating agreement can help you when your members disagree.
Any time two or more people go into business together, they’re destined to disagree at some point or other. By putting in writing how you’re going to deal with important situations, you can head off a lot of potential arguments.
4. An operating agreement can override New York’s default laws.
Whatever you choose not to cover in your operating agreement will be governed by New York legal statutes. These statutes might not perfectly fit your business. That’s why it’s important to customize your operating agreement.
New York 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 Nader & Sons LLC where the members had an operating agreement in place, but one group seemingly failed to actually review and understand the operating agreement. The court simply looked to the plain language of the operating agreement to promptly resolve the dispute among the members. While an operating agreement does not guarantee that litigation will not occur, the presence of a clear written operating agreement serves to expeditiously resolve internal LLC matters.
“As seen in the Nader & Sons LLC case, failure to actually adhere to and understand an operating agreement led to avoidable disputes among the members resulting extensive and expensive litigation. Such valuable resources could have been preserved had the members of the LLC taken the time to plan ahead, discuss potential pain points, and distill their collective understanding into an operating agreement.”
What is included in a New York LLC Operating Agreement?
Your operating agreement lays the groundwork for how your New York LLC will function internally. Technically, you’re free to include almost anything in your operating agreement, as long as it isn’t contrary to New York state laws. However, you should be sure to include the following topics:
- Transferring membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Bookkeeping procedures
New York state prohibits certain topics from being included in an operating agreement, such as a provision to protect a manager who engaged in intentional misconduct or acted in bad faith. Consult the statute NY LLC § 417 (2019) to see a full list of what is prohibited.
Is an operating agreement required in New York state?
Yes. New York statute NY LLC L § 417 (2019) states that an LLC shall adopt a written operating agreement.
Do I have to file my operating agreement in New York state?
No. Because your operating agreement is an internal document, you do not need to file it with the Department of State. However, New York statute NY LLC L § 1102 (2019) requires that you maintain a copy of your operating agreement, along with any amendments.
Does a single-member LLC need an operating agreement?
Yes, not only because you are legally required to have a written operating agreement in New York state, but also because the operating agreement helps you prove that you own your LLC. And even more importantly, it helps you maintain your limited liability status. If you are faced with a lawsuit and do not have an operating agreement, a court may determine you are not a truly separate entity from your business—which would result in losing limited liability protection.
*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.