Operating agreements
Decide the hard questions while everyone agreesNot after the partnership breaks down.
Without a clear operating agreement, Colorado’s default rules may decide how your LLC is managed, how profits are shared, and what happens when a member wants out. Those defaults rarely match what the owners intended.
We draft and negotiate with litigation in mind. We know how disputes get built, so we write agreements that leave less room for one to start. We address ownership, voting, capital contributions, distributions, transfers, buyouts, deadlock, and dissolution in plain terms. Related: partnership disputes, buy-sell agreements, and Why I’ve Stopped Recommending Partnerships Without an Operating Agreement.
Why Colorado LLC Owners Need a Customized Operating Agreement
Turn Verbal Understandings Into Written Rules
A customized operating agreement can create enough clarity that owners know how important decisions will be handled when circumstances change.
Vague Language
Unclear provisions can make disagreements about ownership, control, or responsibilities more difficult.
Missing Provisions
A generic agreement may leave out issues that matter greatly to a specific company.
Changing Expectations
Money, workload, control, and business expectations can change as a company grows.
Future Disputes
A written process can help owners address problems before they become a full business dispute.
What Is an Operating Agreement?
The Internal Governing Document for an LLC
An operating agreement is the internal governing document for an LLC. It establishes the rules the owners agree to follow and can address ownership, management, voting, finances, transfers, exits, and dispute resolution.
- Ownership and membership interests
- Management and voting
- Financial arrangements
- Transfers and exits
- Dispute resolution
Why Customize It?
Build the Agreement Around the Business
A well-drafted agreement should not simply repeat generic language. It should be built around the actual ownership structure, decision-making process, financial arrangements, and long-term plans of the business.
- Reflect how the company actually operates
- Create written rules for changing circumstances
- Clarify how important decisions will be handled
- Reduce uncertainty if owners disagree later
What Should a Colorado Operating Agreement Address?
Focused Legal Support for the Rules Your LLC Needs
The exact provisions depend on the company, but many operating agreements should address ownership, control, finances, ownership changes, exits, disputes, and what happens if the business closes.
- Ownership percentages and contributions
- Management authority and voting rights
- Financial decisions and distributions
- Members, transfers, withdrawals, and exits
- Dispute resolution and dissolution
Ownership Percentages & Capital Contributions
The agreement should clearly identify who owns the company and the ownership percentage or membership interest of each member.
- Document initial contributions
- Address possible additional contributions
- Consider money, equipment, intellectual property, and services
- Clarify whether contributions change an owner’s rights
An operating agreement should explain who has authority to make decisions for the LLC.
- Members, designated managers, or a combination
- Ordinary-course business decisions
- Decisions requiring approval from multiple owners
Management Authority
Voting Rights & Major Decisions
The agreement can identify voting rights and establish special approval requirements for major actions.
- Taking on significant debt
- Selling major assets
- Admitting a new owner
- Changing compensation, entering a major transaction, or selling the company
Owners should understand how profits and losses are allocated and when distributions may be made.
- Allocation of profits and losses
- Distribution timing
- Reserves and reinvestment
- Compensation and reimbursement
Profit Distributions & Financial Decisions
Duties & Expectations of Owners
In many closely held businesses, owners contribute more than money, so expectations should be clear when the business depends on them.
- Managing employees or developing customers
- Overseeing operations or performing professional services
- Devoting significant time to the company
- Coordinating with related agreements if expectations change
Bringing another owner into an LLC changes the economics and control of the company.
- Approval process for new members
- How the new ownership interest is determined
- Documents the new member must sign
- Rights the new member receives
Adding New Members
Transfers of Ownership
Owners should consider what happens if a member wants to sell, transfer, gift, or otherwise dispose of an ownership interest.
- Transfer restrictions
- Rights of first refusal
- Approval requirements
- Buyout procedures
Personal events can affect business ownership and control, so the operating agreement may need to work alongside other planning documents.
- Address ownership or control changes
- Coordinate with estate planning
- Coordinate with buy-sell provisions
Death, Disability, Divorce, or Bankruptcy
Owner Withdrawal & Business Breakups
The agreement can establish an orderly process when an owner wants out.
- Withdrawal and buyout rights
- Valuation
- Payment terms
- Steps for an orderly separation
An operating agreement can establish how internal disputes should be addressed, based on what fits the business.
- Negotiation requirements
- Mediation
- Arbitration
- Litigation or a combination of procedures
Dispute Resolution
Dissolution & Winding Up
The agreement should consider what happens if the business closes and how the transition will be handled.
- Approving dissolution
- Paying obligations
- Handling assets
- Distributing remaining value
Why Work With Trust Johnson Law?
Clear, Usable Agreements Built Around the Business
Trust Johnson Law helps Colorado business owners create legal documents that support the way their companies actually operate.
- Ownership and control
- Decision-making and risk
- Growth and changing circumstances
- Practical business objectives
Our Goal
A Framework for Running the Business
Our goal is not to make an operating agreement complicated for the sake of complexity. It is to create a clear, usable document that gives the owners a better framework for running the business and addressing future problems.
Whether you are forming a new LLC or updating an agreement that no longer fits your company, we can help identify the issues that deserve attention and build the agreement around your business objectives.
When Should You Update an Operating Agreement?
Review the Agreement When the Business Meaningfully Changes
An operating agreement should be reviewed whenever the company experiences a meaningful change. A review can also be valuable before a dispute develops, while the owners are still aligned.
Ownership Changes
Review the agreement when adding or removing an owner or changing ownership percentages.
New Investors or Business Growth
Review it when bringing in investors or expanding into new lines of business.
Management or Compensation Changes
Update the agreement when the management structure or how owners are compensated changes.
Financing or Succession
Review it for significant financing, succession planning, or when the agreement no longer matches the way the company operates.
Problems With Generic Operating Agreement Templates
An Agreement Should Reflect the Company
- Inexpensive and fast does not mean tailored to the business
- Ownership structure or financial arrangements may not be reflected
- Important issues may be left out
- Owners may sign provisions they do not understand
- The company may operate differently from the signed agreement
Single-Member & Multi-Member LLCs
Document the Rules Owners Agree to Follow
- Single-member LLCs can formalize structure, ownership, and management authority
- Single-member agreements can support lenders, business partners, succession planning, or future ownership changes
- Multi-member LLCs can define rights and responsibilities for the owners
- Voting, management, distributions, workload, transfers, buyouts, and exits should be discussed before they become urgent
- Coordinating With Other Business Documents
- Employment and independent contractor agreements
- Intellectual property assignments and confidentiality agreements
- Buy-sell provisions and succession plans
- Leases, loan documents, and other contracts
FAQ
Common questionsStraight answers about your situation.
Does every Colorado LLC need an operating agreement?
An operating agreement is an important governance document for an LLC even when the company has only one owner. The needs of a single-member LLC and a multi-member LLC are different, but both can benefit from having the company’s rules documented in writing.
Can I write my own operating agreement?
Business owners can find many templates online, but the larger question is whether the document accurately reflects the company. A generic agreement may not address ownership, voting, distributions, buyouts, transfers, or other issues in the way the owners actually intend.
Can an operating agreement be changed later?
Operating agreements can often be amended, but the required process depends on the agreement and the company’s circumstances. Owners should review the amendment requirements and work to make sure the revised language is properly documented and coordinated with other company records.
What happens if the owners disagree about the operating agreement?
The first step is usually to review the agreement, related company documents, communications, and the history of how the business has been operated. The appropriate response depends on the issue, the language of the agreement, the ownership structure, and the desired outcome.
Should an operating agreement include a buyout provision?
For many multi-member businesses, a buyout process can be extremely valuable. The agreement may address triggering events, valuation methods, payment terms, transfer restrictions, and approval requirements.
Don’t see your question? Call (720) 334-7305 for a free consultation.
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This page provides general information about Colorado law, not legal advice for your situation. Every case is different, and past experience does not guarantee a particular outcome.