Washington DC LLC Operating Agreement: Drafting Checklist

As you create a small business in the District of Columbia, you’ll need to answer several questions. Should you create a limited liability company (LLC) or go down the incorporation route? What documents does the state require you to complete? What is the best way to handle business formation?

While answering these questions, you’ll likely come across mentions of a Washington, D.C., LLC operating agreement. Discover what that document is, whether your LLC needs one, and the steps for creating this critical internal agreement.

Key Takeaways

• You’re not legally required to create a Washington, D.C., LLC operating agreement to conduct business in the state.

• Your LLC is easier to run when you have an operating agreement because you use the document to define your rules and processes.

• An LLC operating agreement is ideal for any small business that wants to protect its liability protection in the District of Columbia.

What Is an LLC Operating Agreement?

If you’ve already started the filing process for a limited liability company using Washington, D.C.’s CorpOnline service, you may have noticed that an operating agreement isn’t included alongside your Articles of Organization.[1]

What is it, if not something you need to file to create your D.C. business? An operating agreement is a legal document held internally that sets the “rules” for how you run the business. As explained below, it’s not legally required for LLC formation, but it’s useful for several reasons.

Your operating agreement can include basic details, such as your business address and Employer Identification Number (EIN). It’ll also detail your specific processes when situations affecting your LLC arise.

State Requirements

According to the Code of the District of Columbia, an LLC is bound by and may enforce its operating agreement, whether or not the LLC “manifested assent to the operating agreement.”[2] This is a technical way of saying that your operating agreement is a legally binding document. Still, you don’t have to create one to do business in Washington, D.C.

As such, you don’t have to worry about submitting an operating agreement to the Department of Consumer and Regulatory Affairs or the territory’s Corporations Division. However, you’re also not free of legal requirements if you don’t create an operating agreement.

In Washington, D.C., an LLC defaults to the state’s laws for resolving internal and external disputes. In other words — you have less control over your LLC without an operating agreement.

LLC Operating Agreement Benefits

Think of an operating agreement in the same terms as a business plan — it’s not legally required but delivers many benefits to your business. Here are three of them.

Benefit 1 — Assign roles and responsibilities

Every member of your LLC makes contributions, be they in sweat equity or monetary contributions, to gain an ownership percentage. Many members also take on specific responsibilities to keep the LLC running, which you can solidify in your operating agreement to have legal recourse if a member fails to uphold their duties.

Examples of responsibilities you can cover here include assigning a member to oversee your business bank account and credit card or ensuring a member stays on top of any business license you may need to do business in Washington, D.C.

An operating agreement keeps every member of the LLC aware of their duties.

Benefit 2 — Strengthen your liability protection

A single-member LLC can easily be mistaken for a sole proprietorship, which doesn’t enjoy the liability protection offered to personal assets that you get under the LLC structure. If you don’t have immediate proof of your ownership of your LLC, you have to seek costly legal advice when faced with an external issue.

An operating agreement serves as proof for your LLC members.

Whether you’re one person running an LLC or a complex LLC with many members, the operating agreement confirms the company’s status and its members. Doing so strengthens the liability protection that limited liability status offers.

Benefit 3 — Prepare for changes in your LLC

Few LLCs maintain the same ownership or membership structures over time. New members get added. Current members depart. You may also have to deal with succession issues, buyouts, and internal squabbles that threaten the business as it grows.

Trying to handle these issues on an ad-hoc basis leads to turmoil that can derail your LLC. However, with an operating agreement, you can define customized processes for each potential issue. When such problems arise, you refer to the operating agreement and do what it says.

Better yet, every member of your LLC agrees to be bound by the processes in the document, meaning there’s no room for disputing the process without a vote.

Who Needs an Operating Agreement?

Technically, no LLC in the District of Columbia is legally required to have an operating agreement. So, the easy answer to this question is that no Washington, D.C. business needs the document, at least according to state law.

However, that’s an incorrect answer in best practice.

The reality is that almost every LLC needs an operating agreement, especially in the following cases:

• To ensure that state default laws don’t apply when there’s an issue with your business

• To avoid confusion about your business entity, such as ensuring nobody mistakes your single-member LLC for a sole proprietorship.

• To lay the groundwork for future incorporation or transferral to the S-Corp tax status by creating an internal management structure

• To confirm the liability protection members receive under LLC status.

These cases cover practically every LLC. Growth, default laws, and confirmation of liability protection are powerful reasons to include drafting an operating agreement in your LLC formation process.

Drafting Your Washington DC LLC Operating Agreement

Creating an operating agreement in the District of Columbia is simple. There’s no in-person interaction with the Secretary of State, and you don’t have to submit the document, meaning no filing fees. You can even use an LLC operating agreement template to implement a basic agreement.

However, it’s important to remember that a written operating agreement is a legal document. A laissez-faire attitude to its creation can lead to missing essential processes your business needs. So, the better way to create an operating agreement in Washington, D.C., is to follow this five-step process while drafting.

Step 1: Provide Business Information

If you’ve already completed your Articles of Organization for forming your LLC in Washington, D.C., you have a head start on the first step in the operating agreement process.[3] You can transfer most of the basic information from the Articles of Organization into your agreement, including:

• Your LLC name

• Your place of business, as well as a mailing address or P.O. box

• Any alternative business name applied to your company

It’s also worth adding the details of your registered agent in this section of the operating agreement. That agent handles the service of process for your LLC, and they’re essential both for the LLC formation process and your company’s ongoing operations.

Step 2: List LLC Members

The members of an LLC need confirmation that the personal liability structure an LLC offers applies to them. Confirming membership interest, ownership percentages, and how the LLC handles distributions and member contributions is also a good idea.

You handle all that in this section of the process by creating a membership list. Beyond sharing basic details, such as each member’s name and address, you’ll also confirm the protection each member gets for their personal assets and deal with any technicalities or conditions of their membership.

This step is as crucial for a single-member LLC as it is for a multi-member LLC. Even a list of one member solidifies liability protection and lays the groundwork for future growth.

Step 3: Decide Member-managed vs. Manager-managed

The third step in the operating agreement drafting process covers your LLC management structure. The choice is simple – do you implement a member-managed or manager-managed structure to handle day-to-day oversight of your activities?

In a member-managed LLC, one of the existing members takes responsibility for this oversight. This structure is ideal if you want to maintain complete control, as is likely in a single-member LLC. This system could introduce the possibility of a member operating in their own interests ahead of the company’s.

A manager-managed LLC provides independent oversight from a third party, eliminating the possibility of members acting in their own interests. However, you have to pay the third party for their management duties.

Step 4: Lay Out Administrative Operations

Though the previous section handles day-to-day oversight, it doesn’t cover the many situations your business may have to deal with regularly. You need processes for these administrative operations, and that’s where this section comes into play.

Since every LLC has its own processes and requirements, it’s impossible to state precisely what needs to go into this section of your internal document. There are some common operations, such as the following, that affect most LLCs:

• Creating processes to determine voting rights based on anything from ownership percentages to sweat equity

• Developing a way for owners to make capital contributions if the LLC needs a cash injection

• Assigning responsibilities to members for things like managing a business bank account, your biennial report, and your Employer Identification Number

• Ensuring you handle all relevant tax considerations to avoid issues with the Internal Revenue Service (IRS)

Here, your startup can customize its operating agreement to your LLC’s specific needs. Think about what processes you need in the future and those you need now to future-proof the business.

Step 5: Add and Remove LLC Members

As your LLC grows, adding new members or adjusting membership interest for remaining members often becomes necessary if an existing member leads. You also have to think of the future. A buyout would change your business entirely, and the issue of succession needs a confirmed process.

You confront these issues in the final step of creating an operating agreement by creating processes to handle:

• The addition of new members

• What happens in a buyout

• Matters related to indemnification, particularly between members

• How ownership percentages and member contributions change when your membership structure changes

Again, don’t assume you can skip this step if you have a single-member LLC. Laying the groundwork at an early stage ensures that sole business owners are ready for anything that the future may deliver.

Create Your Operating Agreement Through a Filing Service

Are you ready to start a small business in the District of Columbia? Prospective business owners must deal with several legal requirements when forming an LLC, mostly around filing their Articles of Organization. However, don’t underestimate the importance of a Washington, D.C., LLC operating agreement.

Though the agreement isn’t legally required, it ensures liability protection and makes it easier to run your LLC. With Swyft Filings by your side, you have experts who can draft the agreement and handle all of the filing needs of your budding business.

We’ve helped over 300,000 clients with business formation, and our formation fees start from $0 (plus state filing fees). If you’re ready to start, begin drafting today, and we’ll walk together to create your new business.

FAQs

Is an LLC Operating Agreement required in Washington, D.C.?

Your LLC isn’t legally required to create an operating agreement in Washington, D.C. However, it’s beneficial to the success of the everyday processes of your new business.

How does an LLC Operating Agreement help protect my assets?

Operating agreements confirm your membership of an LLC, making it easier to prove that you benefit from personal liability protection.

Who needs access to this document once it’s drafted?

Beyond the LLC owners, all members need access to the operating agreement, as does any manager you bring on board.

How do I edit information on this document if membership changes?

You can establish a process (typically a vote) for editing your operating agreement within the document itself through amendments.

What other legal documents do I need to draft for my Washington, D.C., LLC?

You must submit your Articles of Organization and complete a biennial report every two years.

Bibliography

1. D.C. Department of Licensing and Consumer Protection. “Domestic Limited Liability Company.” Accessed June 30, 2023.

2. Council of the District of Columbia. “Code of the District of Columbia.” Accessed June 30, 2023.

3. District of Columbia Government Corporations Division. “Instruction Sheet for Articles of Organization for Domestic Limited Liability Company (LLC).” Accessed June 30, 2023