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Operating agreement
Also called LLC agreement, company agreement.
The internal governing document of an LLC, requested to confirm ownership percentages, who has authority to bind the company, and whether members must consent to a financing.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
Funders pull it for three reasons: to verify that the ownership on the application matches the ownership on the document, to confirm the person signing has authority to incur debt, and to check whether any consent or transfer restriction stands in the way.
Where no operating agreement exists - and plenty of single-member and small LLCs never adopted one - the funder substitutes a corporate resolution or member consent signed by all members, which serves the same evidentiary purpose. Corporations produce a board or shareholder resolution instead.
The authority question is not procedural box-ticking. If the agreement requires unanimous or majority member consent to incur debt or grant liens, a signature from one member without that consent leaves the funder with a contract of doubtful enforceability and the other members with an argument. Underwriters would rather find this at submission than at collection.
Where this one catches people
Multi-owner files stall here more often than anywhere else. A silent partner with a twenty percent stake who never sees the paperwork is exactly the person the consent clause was written to protect, and the funder will insist on their signature once it reads the document - which means telling them about the financing.
Where you will meet this term
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Operating agreement — common questions
What does operating agreement mean?
The internal governing document of an LLC, requested to confirm ownership percentages, who has authority to bind the company, and whether members must consent to a financing.
Where does operating agreement catch people out?
Multi-owner files stall here more often than anywhere else. A silent partner with a twenty percent stake who never sees the paperwork is exactly the person the consent clause was written to protect, and the funder will insist on their signature once it reads the document - which means telling them about the financing.
Is operating agreement the same as an interest rate?
Operating agreement is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does operating agreement apply to?
Term Loan, Business Line of Credit, SBA Loan, Asset-Based Lending.
Is there a worked example of operating agreement?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside operating agreement?
Corporate resolution, Personal financial statement, Personal guarantee, Qualification criteria, Stips.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.