Ohio LLC Operating Agreement | A Comprehensive Guide

Ohio Operating Agreement

When forming a Limited Liability Company (LLC) in Ohio, one of the most critical steps is creating and executing an LLC Operating Agreement. This legally binding document outlines your LLC’s ownership, management, and operational procedures, ensuring that your business runs smoothly and is protected from potential disputes and legal issues. Although only sometimes required by state law, having a well-drafted operating agreement is essential for an LLC. This article will explore the content and importance of an Operating Agreement in Ohio and discuss its key components.

Webinarcare Editorial Team will help you understand the process of having an operating agreement for your Ohio business. You must be guided by all the factors gathered in this article.

What is an Operating Agreement?

An operating agreement is a legally binding document that outlines a limited liability company‘s ownership structure, management, and operational procedures (LLC). It governs the internal workings of the LLC and establishes the rights, responsibilities, and obligations of its members (owners) and managers.

This includes details such as rules, regulations, and provisions related to the operation of the LLC. The Operating Agreement serves as a guide for dealing with disagreements, bringing in new members, and managing various situations that may arise while doing business. It delivers clarity and ensures smooth functioning while providing legal protection to businesses.

Although not always required by state law, having a well-drafted operating agreement is essential for an LLC. It helps prevent potential disputes among members, ensures smoother business operations, and provides a clear framework for making decisions and resolving issues. It also helps to establish limited liability protection for the members by demonstrating that the LLC is a separate legal entity with its own rules and procedures.

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Ohio LLC Operating Agreement Content

An operating agreement is a legal document detailing the LLC’s organizational structure and operational procedures. It includes forming the LLC, members and ownership, distribution of profit and losses, management structure, meetings and voting procedure, limitation of liability and indemnification, dissolving Ohio business, dispute resolution, and amendments and modification.

Article I: Formation of the LLC

The first step in creating an LLC Operating Agreement is to outline the basic information about your LLC, such as:

  • Name of the LLC: Your LLC’s name must include the words “Limited Liability Company” or the abbreviation “LLC” or “L.L.C.” and comply with the Ohio LLC naming requirements.
  • Principal Office Address: This is where your LLC’s primary business activities will be conducted.
  • Purpose of the LLC: This section should describe the primary purpose of your LLC and the types of business activities it will engage in.
  • Statutory Agent Information: Your Statutory Agent is a person or entity designated to receive legal documents on behalf of your LLC. The Statutory Agent must have a physical street address in Ohio. It’s essential to choose a reliable and responsible Ohio Statutory Agent, as failure to receive and respond to legal documents can have serious consequences for you to start a business in Ohio

You can serve as your Statutory Agent, appoint a friend or family member, or hire the Best Ohio Statutory Agent Services. We reviewed some of the services for you to check out if you still don’t have one.

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Article II: Members and Ownership

This section deals with identifying all the members of the LLC and their ownership percentages. It includes details like names, addresses, and contributions of each member. Details about how increases and decreases in membership are also covered in this section.

  • Initial Members: The names and addresses of each initial member should be listed, along with their respective ownership interests.
  • Ownership Interests: This section should detail each member’s ownership interest percentage.
  • Capital Contributions: Each member’s initial capital contribution to the LLC should be documented, along with any additional contributions that may be required.
  • Additional Members: The agreement should outline the process for admitting new members to the LLC and the rights and responsibilities of these new members.
  • Transfer of Membership Interests: The operating agreement should contain provisions governing the transfer of membership interests, including transfer restrictions and the right of first refusal for existing members.
  • Withdrawal of Members: The process and consequences for members who wish to withdraw from the LLC should be clearly defined. In Ohio, there is a definite guideline on How to Remove a Member from your Ohio LLC. 

Article III: Distribution of Profits and Losses

This article explains how the LLC profits and losses will be distributed among the members. It can be based on the ownership percentages or a different agreement stipulated by the members. It lays out the process for distribution and any restrictions on those distributions.

  • Allocation of Profits and Losses: The agreement should detail how profits and losses will be allocated among the members, typically based on their own interests.
  • Distributions to Members: The process for distributing profits to members should be outlined, including the timing and manner of distributions.

Article IV: Management Structure

Your LLC Operating Agreement should outline the management structure of your business. This includes

Member-Managed vs. Manager-Managed: You must decide whether your LLC will be managed by its members or appointed managers. This decision will impact the roles and responsibilities of each party.

A Member-Managed LLC is a type of limited liability company (LLC) where the management and day-to-day operations of the business are handled by its members (owners) directly. In a Member-Managed LLC, each member has the authority to make decisions and take actions on behalf of the company, such as entering into contracts, hiring employees, and managing the finances.

This management structure contrasts with a Manager-Managed LLC, where the members appoint one or more managers to oversee the business operations. In a Manager-Managed LLC, the appointed managers have the authority to make decisions and act on behalf of the company. In contrast, the members typically have a more passive role, focusing on high-level decision-making and strategic planning.

Roles and Responsibilities of Members/Managers: The agreement should define the roles and responsibilities of each member or manager, including their duties, decision-making authority, and any limitations on their powers.

Article V: Meetings and Voting Procedures

This article outlines the rules for conducting meetings and voting procedures. It specifies the quorum required for decision-making, how votes are counted, and how members are notified about meetings. It also includes information about special meetings and emergency decisions.

  • Voting Rights and Decision-Making Process: The agreement should outline each member or manager’s voting rights and decision-making for various business matters.
  • Meetings and Notice Requirements: The operating agreement should specify the frequency of meetings, the process for calling special meetings, and the notice requirements for each type of meeting.

Article VI: Limitation of Liability and Indemnification

To protect the personal assets of your LLC’s members and managers, your operating agreement in Ohio should address the following:

  • Liability of Members/Managers: The agreement should limit the liability of members and managers for the debts and obligations of the LLC, following Ohio law.
  • Indemnification Provisions: The operating agreement should include provisions for indemnifying members and managers for actions taken on behalf of the LLC, as long as those actions are within the scope of their duties and do not involve gross negligence or willful misconduct.
  • Insurance Requirements: The agreement should specify any insurance requirements for your LLC, such as liability or property insurance. Small business insurance helps safeguard your business from financial losses, legal claims, and other unforeseen events. This protection allows entrepreneurs to focus on growing and sustaining their businesses within the Ohio economy.

You may check out the Best Small Business Insurance in Ohio to learn more about business insurance.

Article VII: Record Keeping and Financial Reporting

This article provides details about the record-keeping and financial auditing procedures. It outlines the importance of keeping accurate and comprehensive records of an LLC’s financial transactions. It also specifies the frequency of financial reporting and distribution to the members.

  • Accounting and Recordkeeping: The operating agreement should outline your Ohio LLC’s accounting methods and recordkeeping requirements. Effective financial management is important for the success of your Ohio LLC. Establish a reliable accounting system to track income, expenses, and tax obligations. You can manage your finances using spreadsheets, accounting software, or becoming a CPA in Ohio.
  • Fiscal Year: The agreement should specify the fiscal year for your LLC, which may be either a calendar year or any 12-month period.
  • Tax Treatment and Filing Requirements: The agreement should specify your LLC’s tax treatment and any required filings with the Ohio tax authorities. You should include the filing of the Ohio Articles of Organization, annual fees, and other associated fees that need to be filed.

For the initial and final cost for forming your Ohio LLC, look up the LLC Cost in Ohio for additional information. 

Article VIII: Dissolution and Winding Up

This section outlines the circumstances under which the LLC may be dissolved, such as a unanimous decision by members, legal issues, bankruptcy, or achieving its purpose. It also includes information about how the LLC’s assets will be liquidated and debts paid upon dissolution.

Events Triggering Dissolution: The agreement should list the events that will trigger the dissolution of your LLC, such as the death or withdrawal of a member, a unanimous vote of the members, or a court order. 

Some common events include:

  • A unanimous vote of the members to dissolve the business.
  • The death, resignation, or withdrawal of a member unless the remaining members agree to continue the business.
  • The expiration of a specified period or the completion of a specific purpose, as outlined in the operating agreement.
  • A court order mandating the dissolution of the LLC.

Winding Up Process: The operating agreement should outline the process for winding up the affairs of the LLC, which typically involves:

  • Settling the company’s outstanding debts and obligations.
  • Liquidating the company’s assets.
  • Resolving any pending legal disputes.
  • Preparing and filing final tax returns.

Distribution of Assets: The operating agreement should specify how the LLC’s remaining assets will be distributed among the members upon dissolution, typically in proportion to their ownership interests.

Certificate of Cancellation: After the winding-up process is completed, the LLC may be required to file a certificate of cancellation or articles of dissolution with the Ohio Secretary of State to dissolve the company and remove it from its records formally. 

Article IX: Dispute Resolution

This article provides the protocol for handling any disputes arising between LLC members. It can include stipulations for mediation or arbitration in case of any conflicts. The agreement should include a process for resolving member disputes, such as mediation or arbitration.

Article X: Amendments and Modifications

Your LLC Operating Agreement in Ohio should include a process for making amendments and modifications, such as:

  • Process for Amending the Operating Agreement: The agreement should outline the process for proposing, considering, and approving amendments to the operating agreement.
  • Required Approval for Amendments: The agreement should specify the percentage of member approval required to amend the operating agreement.

Once your LLC Operating Agreement has been drafted, it should be executed by the initial members or managers and adopted by any additional members who join the LLC.

Role of Statutory Agent in LLC Operating Agreement

A Statutory Agent is a person or entity designated to receive legal documents and official correspondence on behalf of an LLC. While the primary role of a Statutory Agent is to maintain a reliable point of contact for legal matters, some registered agent service providers also offer additional services, such as creating an operating agreement for your LLC. Below are some advantages of having a Statutory Agent create an operating agreement for your business:

  • Expertise: A Statutory Agent specializing in LLC Formation Services often has extensive knowledge and experience drafting operating agreements. They are familiar with the requirements and best practices for creating a comprehensive and legally compliant operating agreement, which can help protect your business interests and minimize potential disputes among members.
  • State-Specific Requirements: A Statutory Agent offering operating agreement services is well-versed in state-specific laws and regulations governing LLCs. They can ensure that your operating agreement complies with the specific requirements of the state in which your LLC is formed, including mandatory provisions and filing requirements.
  • Time-Saving: Drafting an operating agreement in Ohio can be complex and time-consuming, especially for business owners unfamiliar with legal terminology and procedures. By delegating this task to a Statutory Agent, you can save time and focus on other crucial aspects of your business.
  • Customization: A Statutory Agent with experience creating operating agreements can tailor the document to meet your business’s unique needs and circumstances. They can help you address specific management structures, financial arrangements, and other critical aspects of your LLC that may not be covered in a generic operating agreement template.
  • Ongoing Support: The Statutory Agent services provide ongoing support and guidance in maintaining and updating your operating agreement as your business grows and evolves. This can help ensure that your operating agreement remains relevant and compliant with changing laws and regulations.

While there are advantages to having a Statutory Agent create an operating agreement for your LLC, it is essential to carefully review and understand the terms of the agreement before signing. Additionally, it is a good idea to consult with legal and tax professionals to ensure that the operating agreement aligns with your business goals and complies with all applicable laws and regulations.

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What is an LLC operating agreement in Ohio?
An LLC operating agreement in Ohio is a legal document that outlines the ownership, management, and finances of an LLC.
Is an LLC operating agreement required in Ohio?
While an Ohio LLC operating agreement is not required, it is strongly recommended to have one.
Can an operating agreement be changed in Ohio?
Yes, an operating agreement for an LLC in Ohio can be changed through a document that outlines the changes, signed by the members.
Who needs an LLC operating agreement in Ohio?
Any LLC in Ohio should have an operating agreement, no matter how many members the company has.
Does Ohio require a specific format for an operating agreement?
No, Ohio does not require a specific format for an operating agreement.
Can a member of an Ohio LLC use a sample operating agreement?
A sample operating agreement can be used as a guide for an Ohio LLC, but it must be personalized for your company.
Can you have a single-member operating agreement in Ohio?
Yes, a single-member LLC in Ohio can have an operating agreement that details ownership, operations, and finances.
Does Ohio recognize a verbal agreement as an operating agreement?
While Ohio does not require a written operating agreement, verbal agreements are not recommended, as it is difficult to prove their terms.
How is an LLC taxed in Ohio?
An LLC in Ohio may be taxed as a corporation, partnership, or disregarded entity, depending on the choice made by the members.
Can an Ohio LLC have officers?
Yes, an Ohio LLC can appoint officers, with specific roles and responsibilities outlined in the operating agreement.
Can a non-resident own an Ohio LLC?
Yes, Ohio LLCs can be owned by non-residents of Ohio or the United States.
Does Ohio require an annual operating agreement update?
Ohio LLCs are not required to annually update their operating agreement.
Can an operating agreement include restrictions on member conduct?
Yes, an operating agreement for an Ohio LLC can include provisions on member conduct, such as restrictions on conflicts of interest.
What information should be included in an Ohio LLC operating agreement?
An operating agreement for an Ohio LLC should include details regarding LLC governance, distributions, and member roles and responsibilities.
Can a member sell their ownership share in an Ohio LLC?
Yes, Ohio LLC operating agreements can outline the procedures for buying and selling ownership shares.
Can the operating agreement outline a member’s voting rights in the Ohio LLC?
Yes, Ohio LLC operating agreements may outline the members’ voting rights, detailing the percentage of the ownership needed to pass certain types of decisions.
How can you dissolve an Ohio LLC?
An Ohio LLC can be dissolved and winding up operations according to guidelines provided in the operating agreement.
Can an Ohio LLC pay designated members for services or expertise?
Yes, Ohio LLCs can designate specific members to be paid for services or expertise in the operating agreement.
How is ownership percentage calculated in an Ohio LLC?
An Ohio LLC’s ownership percentage is calculated based on each member’s contributions, active management, and other relevant factors that are specified in the operating agreement.
Can a member’s ownership percentage change in Ohio LLC?
Yes, an Ohio LLC operating agreement can permit ownership to be allocated based on different factors over time.
Can an Ohio LLC require members to make capital contributions?
Yes, an Ohio LLC operating agreement can legally require members to make capital contributions to the LLC.
Are LLC contracts enforceable in Ohio?
Yes, LLC contracts are enforceable in Ohio, but the specific agreements must be reviewed by an attorney to ensure that they are legally binding.
Can an Ohio LLC allocate profits or losses to members differently than ownership shares?
Yes, Ohio LLC operating agreements can have differing profit or loss allocation methods, such as a percentage of expected profit or losses, or an equal distribution per member.
Can an Ohio LLC limit member liability?
Yes, an Ohio LLC operating agreement can limit the liability of members by establishing anti-dilution provisions.
Can Ohio LLC members be personally liable?
If an Ohio LLC meets certain criteria, such as being managed by a member instead of being directed by the Operating Agreement, members can be held accountable individually.
Can the operating agreement prevent certain member actions in an Ohio LLC?
Yes, the operating agreement for Ohio LLCs can restrict a specific member’s ability to vote, enter a business, or otherwise act on behalf of the company.
Is there a template for an Ohio LLC operating agreement?
While Ohio does not require you to use a specific template for an LLC operating agreement, software providers offer various models, but these corporate documents are customarily drafted specifically for the company.
Is an attorney required when creating an Ohio LLC operating agreement?
Hiring an Ohio attorney to draft an operating agreement for your LLC protects you from unplanned for mishaps, and it is highly recommended to move in with the preparation.
How do you modify an LLC operating agreement in Ohio?
To modify an LLC operating agreement in Ohio, write an amendment document that outlines the changes and have all members signed.
Do Ohio LLC operating agreements protect minority members?
Yes, Ohio LLC operating agreements can include provisions that assist minority members if they are marginalized or treated inequitably.

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Having a well-drafted LLC Operating Agreement in place is crucial for the success and protection of your Ohio LLC. It provides a clear framework for the ownership, management, and operation of your business, helping to prevent disputes and ensure compliance with state law. It is highly recommended to consult with legal and tax professionals when drafting and executing your operating agreement to ensure it meets your specific needs and complies with all applicable laws and regulations.

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