How to review an LLC operating agreement

An LLC operating agreement is the contract among the members of a limited liability company. State LLC statutes give the parties wide freedom of contract, so the agreement, not the statute, usually decides who controls the company, how money comes out and how members leave. This checklist covers the clauses to check and how to review the agreement in Word with LexDraft.

Last checked: 17 October 2026. The law changes; check the current position before relying on this page.

Before you start

• Identify the state. The LLC is governed by the law of its state of formation. Many states have adopted a version of the Revised Uniform Limited Liability Company Act; Delaware, a common choice, has its own LLC Act with strong freedom-of-contract principles.
• Single or multi-member. A single-member agreement is short but still matters for liability protection and succession. Multi-member agreements need the governance and exit terms below.
• Who you represent. The company, a manager or a member. Interests diverge on control and buyouts.

Clause checklist

• Management structure. Member-managed or manager-managed. Check who can bind the company, and the list of major decisions that need member approval (sale, new members, debt, amendments).
• Capital contributions. Initial contributions, capital calls, and consequences of failing to fund.
• Units and classes. Common and preferred units, profits interests for service providers, and vesting.
• Distributions. Waterfall, tax distributions, and statutory limits on distributions that would leave the LLC unable to pay its debts.
• Tax classification and allocations. A multi-member LLC is taxed as a partnership by default unless it elects otherwise. Allocation provisions and the partnership representative designation for the federal audit regime need tax review.
• Fiduciary duties. Delaware lets an LLC agreement restrict or eliminate fiduciary duties, but not the implied contractual covenant of good faith and fair dealing. Many RULLCA states allow modification within limits. Check exactly what the clause does.
• Outside activities and opportunities. Whether members and managers may compete, and how corporate opportunities are handled.
• Transfer restrictions. Consent requirements, rights of first refusal, tag-along and drag-along rights, and the difference between transferring economic rights and admitting a new member.
• Buy-sell and exit. Triggers (death, disability, divorce, termination of employment, bankruptcy), valuation and payment terms.
• Deadlock. For 50/50 LLCs, a deadlock mechanism (mediation, a tie-breaker, or a buy-sell such as a shotgun clause) avoids judicial dissolution.
• Indemnification and exculpation. Scope, exclusions for bad faith or wilful misconduct, and advancement of expenses.
• Dissolution. Events of dissolution, winding up and the order of distributions.
• Amendments. Which vote is needed, and whether amendments that affect one member disproportionately need that member's consent.

Beneficial ownership reporting

In March 2025, FinCEN issued an interim final rule exempting entities created in the United States from Corporate Transparency Act beneficial ownership reporting; reporting now applies mainly to certain foreign entities registered to do business in a state. Check the current FinCEN position and any state-level reporting rules before advising.

Common mistakes

• Using a form drafted for a different state's statute.
• No deadlock mechanism in a two-member LLC.
• Calling the same people "Members", "Holders" and "Unitholders" in different sections. The defined-term check catches this.

A operating agreement review workflow in Word

LexDraft is a Word add-in from Microsoft AppSource. It opens as a side panel in Word 365 (Windows and Mac), Word 2021 and Word on the web, so the agreement never leaves the tool you already draft in.

1. Open the agreement in Word and open LexDraft in the side panel.
2. Pick the governing law. Select the state named in the governing law clause so LexDraft looks for state-specific red flags.
3. Run the review. LexDraft has four built-in playbooks (NDA, SaaS MSA, DPA and services agreement) and no dedicated operating agreement playbook, so this runs as a general review against the governing law you chose. Use the checklist on this page to direct your own read.
4. Triage by severity. Findings are graded Critical, High, Medium or Low, and LexDraft flags standard terms that are missing.
5. Run the quick checks. The defined-term and cross-reference checks are rule-based and run without AI.
6. Accept or reject each redline. Accepted changes land as native Word tracked changes.
7. Verify and sign off. You check every output before it goes to the client or the other side.

What LexDraft does not do

LexDraft does not give legal or tax advice, form entities or make filings. Nothing changes in your document until you accept a redline.

This guide is general information, not legal advice. LexDraft does not give legal advice; qualified counsel must review every draft. Spotted something out of date? Email support@lexdraft.ai and we will fix it.