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LLC Operating Agreement

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MEMORANDUM OF OPERATING AGREEMENT AND FINANCING STATEMENT

STATE:

COUNTY:

1. This Memorandum of Operating Agreement and Financing Statement (called the “Memorandum”), shall be effective when the Operating Agreement referred to in Paragraph 2. below becomes effective, that being (Date)

2. The Parties have entered into an Operating Agreement, providing for the development and production of crude oil, natural gas, and associated substances from the lands described in Exhibit “A” to this Memorandum (the “Contract Area”), designating as Operator, whose address is , to conduct operations.

3. The Operating Agreement provides for certain liens and/or security interests to secure payment by the parties to that Agreement of their respective share of costs under the Operating Agreement. The Operating Agreement contains an Accounting Procedure along with other provisions which supplement the lien and/or security interest provisions, including non-consent clauses which provide that Parties who elect not to participate in certain operations shall be deemed to have relinquished their interest until the consenting Parties are able to recover their costs of the operations plus a specified amount. Any person or firm desiring additional information regarding the Operating Agreement or who wish to inspect a copy of the Operating Agreement should contact the Operator.

4. The purpose of this Memorandum is to more fully describe and implement the liens and/or security interests provided for in the Operating Agreement, and to place third parties on notice of them.

5. In consideration of the mutual rights and obligations of the Parties, they agree as follows:

5.1. The Operator shall conduct, direct, and have full control of all Operations on the Contract Area as permitted, required by, and within the limits of the Operating Agreement.

5.2. The liability of the Parties shall be several, not joint or collective. Each Party shall be responsible only for its obligations and shall be liable only for its proportionate share of costs.

5.3. Each Non-Operator grants to Operator a lien on its oil and gas rights in the Contract Area, and a security interest in its share of oil and or gas when extracted and its interest in all equipment, to secure payment of its share of expenses, together with any interest at the rate provided in the Accounting Procedure referred to in Paragraph 3. above. To the extent that Operator has a security interest under the Uniform Commercial Code of the State in which properties subject to the Operating Agreement are located (the “Code”), Operator shall be entitled to exercise the rights and remedies of a secured party under the Code. The bringing of a suit and the obtaining of judgment by Operator for the secured indebtedness shall not be deemed an election of remedies or otherwise affect the rights or security interest for the payment thereof.

5.4. If any Non-Operator fails to pay its share of costs when due, Operator may require other Non-Operators to pay their proportionate part of the unpaid share, and the other Non-Operators shall be subrogated to Operator’s lien and security interest.

5.5. The Operator grants to Non-Operators a lien and security interest equivalent to that granted to Operator as described in Paragraph 5.3 above, to secure payment by Operator of its own share of costs when due.

6. For purposes of protecting the liens and security interest, the Parties agree that this Memorandum shall cover all right, title, and interest of the debtor(s) in:

6.1. Property Subject to Security Interests

(a) All personal property located on or used in connection with the Contract Area.

(b) All fixtures on the Contract Area.

(c) All oil, gas, and associated substances of value in, on, or under the Contract Area which may be extracted from it.

(d) All accounts resulting from the sale of the items described in subparagraph (c) at the wellhead of every well located on the Contract Area or on lands pooled with it.

(e) All items used, useful, or purchased for the production, treatment, storage, transportation, manufacture, or sale of the items described in subparagraph (c).

(f) All accounts, contract rights, rights under any gas balancing agreement, general intangibles, equipment, inventory, farmout rights, option farmout rights, acreage and or cash contributions, and conversion rights, whether now owned or existing or later acquired or arising, including but not limited to all interest in any partnership, limited partnership, association, joint venture, or other entity or enterprise that holds, owns, or controls any interest in the Contract Area or in any property encumbered by this Memorandum.

(g) All severed and extracted oil, gas, and associated substances now or later produced from or attributable to the Contract Area, including, without limitation, oil, gas, and associated substances in tanks or pipelines or otherwise held for treatment, transportation, manufacture, processing or sale.

(h) All the proceeds and products of the items described in the foregoing paragraphs now existing or later arising, and all substitutions, replacements thereof, or accessions thereto.

(i) All personal property and fixtures now and later acquired in furtherance of the purposes of this Operating Agreement. Certain of the above-described items are or are to become fixtures on the Contract Area.

(j) The proceeds and products of collateral are also covered.

6.2. Property Subject to Liens

(a) All real property within the Contract Area, including all oil, gas and associated substances of value in, on or under the Contract Area which may be extracted from the real property.

(b) All fixtures within the Contract Area.

(c) All real property and fixtures now and later acquired in furtherance of the purposes of the Operating Agreement.

7. The above items will be financed at the wellhead of the well or wells located on the Contract Area, and this Memorandum is to be filed for record in the real estate records of the county or counties in which the Contract Area is located, and in the appropriate Uniform Commercial Code records. All Parties who have executed the Operating Agreement and all farmors and option farmors who have granted support within the Contract Area are identified on Exhibit “A.”

8. On default of any covenant or condition of the Operating Agreement, in addition to any other remedy afforded by law or the practice of the State in which the Contract Area is located, each Party to the Agreement and any successor to a Party by assignment, operation of law, or otherwise, shall have, and is given and vested with, the power and authority to take possession of and sell any interest which the defaulting Party has in the subject lands and to foreclose this lien in the manner provided by law.

9. On expiration of the Operating Agreement and the satisfaction of all debts, the Operator shall file of record a release and termination of that Agreement on behalf of all parties concerned. On the filing of the release and termination, all benefits and obligations under this Memorandum shall terminate as to all Parties who have executed or ratified this Memorandum. In addition, the Operator shall have the right to file a continuation statement on behalf of all Parties who have executed or ratified this Memorandum.

10. It is understood and agreed by the Parties that if any part, term, or provision of this Memorandum is held by the courts to be illegal or in conflict with any law of the State where the Contract Area is located, the validity of the remaining portions or provisions shall not be affected, and the rights and obligations of the Parties shall be construed and enforced as if the Memorandum did not contain the particular part, term or provision held to be invalid.

11. This Memorandum shall be binding on and shall inure to the benefit of the Parties and their respective heirs, devisees, legal representatives, successors and assigns. The failure of one or more persons owning an interest in the Contract Area to execute this Memorandum shall not in any manner affect the validity of the Memorandum as to those persons who have executed this Memorandum.

12. A Party having an interest in the Contract Area can ratify this Memorandum by execution and delivery of an instrument of ratification, adopting and entering into this Memorandum, and the ratification shall have the same effect as if the ratifying party had executed this Memorandum or a counterpart of it. By execution or ratification of this Memorandum, the Party consents to its ratification and adoption by any Party who may have or may acquire any interest in the Contract Area.

13. This Memorandum may be executed or ratified in one or more counterparts and all of the executed or ratified counterparts shall together constitute one instrument. For purposes of recording, only one copy of this Memorandum with individual signature pages attached to it needs to be filed of record.

By:

Name:

Title:

By:

Name:

Title:

(acknowledgments)

Exhibit “A” – Schedule of all Parties to the Contract Area

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What an LLC Operating Agreement Is and Why It Matters

The LLC Operating Agreement is a written contract among an LLC’s members that defines ownership percentages, member rights and responsibilities, management structure, voting procedures, profit and loss allocation, and procedures for admitting or removing members. Although most states do not require an operating agreement to form an LLC, a clear, signed operating agreement reduces internal disputes, establishes liability protections, and specifies tax treatment choices. It complements the Articles of Organization filed with the state and serves as the definitive internal governance document used when members or managers make decisions or when the company undergoes ownership changes.

Why a Written Operating Agreement Benefits Your LLC

A written LLC Operating Agreement clarifies member duties, protects limited liability status by documenting corporate formalities, allocates financial rights and obligations, and provides predictable procedures for management, transfers, and dissolution, reducing litigation risk and aiding bank or investor due diligence.

Why a Written Operating Agreement Benefits Your LLC

Who Commonly Prepares and Uses an Operating Agreement

Common users of LLC Operating Agreements include small business founders, investors, managers, and legal or financial advisors who assist with governance and compliance.

  • Founders and members managing ownership, profits, and voting rights daily.
  • Investors and lenders reviewing governance for risk assessment and protections.
  • Attorneys and accountants drafting provisions and advising on tax or compliance.

Use the operating agreement to document expectations formally, retain executed copies in company records, and circulate the final version to key advisors.

Primary Signatories and Their Roles

Member — Founder

Founders who hold membership interests typically sign the operating agreement to admit ownership, accept capital obligations, record voting rights, and acknowledge allocation of profits and losses; founders should review tax and liability provisions with counsel.

Manager — Appointed Manager

Appointed managers who act for the LLC sign to accept management duties and fiduciary obligations; their signature blocks should clarify authority limits, delegation rights, and reporting obligations to the members.

Step-by-Step: How to Complete an Operating Agreement

Follow these steps to complete a standard LLC Operating Agreement and ensure signatures, dates, and witnessing or notarization meet your chosen state's requirements.

  • 01
    Prepare Parties: List all members, addresses, ownership percentages.
  • 02
    Define Management: Specify manager roles and voting rules.
  • 03
    Detail Economics: Record contributions, profit allocation, and distributions schedule.
  • 04
    Sign and Date: All members sign, date, and include witness or notary as required.

Essential Sections Any Professional Operating Agreement Should Include

A professional LLC Operating Agreement clearly covers governance, capital structure, economic allocations, member duties, transfer restrictions, and dispute resolution to reduce ambiguity and legal exposure.

Ownership

Define membership interests, percentage ownership, capital accounts, and procedures for issuing additional interests to ensure clear equity allocation and tax reporting alignment, including valuation methods and timing for capital calls.

Management

Specify member-managed or manager-managed structure, identify managers, outline duties and authority, and set voting thresholds for routine and extraordinary actions to prevent governance disputes and succession planning.

Economics

Detail how profits, losses, and distributions are allocated among members, timing of distributions, priority payments, and treatment of tax items like guaranteed payments and capital account adjustments.

Transfers

Restrict assignments, include right-of-first-refusal and buy-sell mechanisms, set valuation formulae, and define permitted transfers to limit unwanted ownership changes and address drag-along and tag-along rights.

Dispute Resolution

Provide steps for mediation or arbitration, choice of law and venue, and procedures for deadlock situations to resolve conflicts without prolonged litigation and specify fee allocation.

Dissolution

State events triggering dissolution, winding-up steps, creditor priority, distribution waterfall, and post-dissolution record retention requirements to ensure orderly closure including tax filings and notices to authorities.

Required Information and Key Data Fields

Entity Name: Exact legal name as filed.
Member Names: All members’ full legal names.
Capital Contributions: Amount and type of contribution.
Ownership Percentages: Ownership share for each member.
Management Structure: Member- or manager-managed designation.
Signatures & Dates: Signed and dated by authorized parties.

Common Risks When the Agreement Is Incomplete or Incorrect

Voidable Provisions: Ambiguous clauses risk disputes.
Tax Misalignment: Incorrect allocations trigger audits.
Binding Obligations: Unsigned agreements may be unenforceable.
Transfer Liability: Unrestricted transfers dilute interests.
Manager Misconduct: Poor controls increase fiduciary risk.
Failure to Retain: Missing records hamper audits.

Common Preparation Mistakes to Avoid

  • Using informal or abbreviated entity names leads to mismatches with state filings, bank accounts, and tax records and can delay transactions.
  • Failing to set clear voting thresholds or quorum rules creates uncertainty and can paralyze decision-making during critical events.
  • Omitting buy-sell provisions or valuation formulas often results in protracted disputes and unpredictable buyouts when a member departs.
  • Neglecting to align the agreement with tax elections and accounting methods can produce adverse tax outcomes and IRS challenges.

Digital Signing and File Requirements

Digital signing and eSubmission require compatible file formats, signer authentication options, and an audit trail to meet legal and recordkeeping standards.

  • File Formats: PDF and DOCX supported.
  • Authentication: Email, SMS code, or 2FA.
  • Audit Trail: Timestamps, IP, action log.

How to Configure an Online Signing Workflow

Configure an online workflow to collect signatures in order, verify identity, and store signed documents automatically.

Field Configuration
Specify signer sequence and order Set sequential or parallel signing
Field validation and required fields Mark key fields as required and validate formats.
Authentication level and verification methods Choose email, SMS, KBA, or SSO authentication.
Document retention and export settings Auto-save signed PDFs and export audit logs.
Set notifications and reminders schedule Send reminders at set intervals until signing completes.

eSignature Pricing and Feature Comparison

Compare common vendor pricing and feature availability for eSignature providers relevant when signing an LLC Operating Agreement.

signNow DocuSign Adobe Sign PandaDoc HelloSign
Starting Price $8/user/mo $15/user/mo $14/user/mo $19/user/mo $15/user/mo
Free Trial 7-day free trial, no credit card required No No Yes, limited Yes, limited
Bulk Send Yes Yes Yes Yes No
Audit Trail Yes Yes Yes Yes Yes
HIPAA Compliant Yes Yes Yes No No
Envelope Cap No cap 100 envelopes/user/year No cap No cap No cap

Examples: How Operating Agreements Solve Real Problems

Real-world examples show how operating agreements resolve ownership, succession, and investment scenarios across industries practically.

Real Estate Closing

A three-member LLC used a detailed operating agreement to document unequal capital contributions and the priority of distributions after property sale.

  • It specified buyout formulas and valuation.
  • When a member wanted to exit, the pre-agreed valuation method and payment schedule allowed a quick transfer of interest, avoided litigation, protected lender expectations, and simplified closing for the remaining members and the title company.

Startup Investment

A software startup allocated preferred economic rights to early investors while preserving founder control through manager-managed structure and specified vesting schedules in the operating agreement.

  • It established anti-dilution protections and buyback rights.
  • By documenting vesting and transfer limits, the agreement reassured investors, enabled clear equity accounting for tax reporting, and provided mechanisms to remove or replace managers if performance or compliance issues arose, streamlining later funding rounds.

Practical Tips to Keep Your Agreement Accurate and Enforceable

Practical tips help ensure the agreement is enforceable, aligns with tax treatment, and remains clear as the company evolves.

Use consistent legal names and identifiers
Always match the LLC name and member names exactly to state filings and EIN records; mismatches cause banking, tax, and title issues and may delay transactions with third parties.
Specify voting quorums and supermajority requirements
Define quorum, ordinary voting, and supermajority thresholds for major actions such as amendments, mergers, or sales. Clear vote rules prevent impasse and ensure predictable governance when strategic or liquidity events occur.
Include dispute resolution and deadlock mechanism
Specify mediation, arbitration, or buy-sell processes and detail tie-breakers for manager stalemates. Predefined steps reduce litigation costs and preserve company value by offering quicker, lower-cost remedies for disputes and protect operational continuity.
Review with tax and legal counsel regularly
Revisit the agreement after significant events—capital raises, ownership changes, or regulatory shifts—and confirm allocations and elections remain appropriate; counsel can advise on updated tax strategies and compliance obligations to reduce future liability.

Frequently Asked Questions About the LLC Operating Agreement

Common questions about drafting, signing, and enforcing an LLC Operating Agreement, including digital signature validity, amendments, and record retention requirements.


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