The limited liability company is the most popular business structure in Maryland for a reason. It combines the liability protection of a corporation with the tax flexibility and operational simplicity of a partnership. But forming an LLC by filing articles of organization with the Maryland State Department of Assessments and Taxation is only the first step. The articles create the entity. They do not govern how it actually operates.

That job belongs to the operating agreement. And for a document so critical, it is remarkable how often Maryland business owners skip it entirely or rely on a generic template downloaded from the internet.

An operating agreement is the internal contract that defines the rights, responsibilities, and economic arrangements of the LLC’s members. It determines who manages the business, how profits and losses are shared, what happens when a member wants to leave, and how disputes are resolved. Without one, your LLC operates under the statutory default rules in Title 4A of the Maryland Corporations and Associations Article. Those default rules are designed to be a fallback. They are not designed to reflect the actual arrangement between you and your business partners. And when disagreements arise, the gap between what you assumed the deal was and what the default rules actually say can be expensive to close.

This guide explains what Maryland law requires (and does not require) regarding LLC operating agreements, what the default rules look like and why they rarely work, what provisions a well-drafted agreement should contain, and why this document matters whether you are a sole owner or one of several members.

Maryland’s LLC Act is codified in Title 4A of the Corporations and Associations Article. The primary statute governing operating agreements is § 4A-402.

Section 4A-402(a) provides that members may enter into an operating agreement “not inconsistent with the articles of organization to regulate or establish any aspect of the affairs of the limited liability company, the conduct of its business, or the relations of its members.” The statute then lists a broad, non-exhaustive set of subjects the operating agreement may address, including management structure, profit and loss sharing, assignment of membership interests, admission of new members, amendment procedures, and the rights of non-member parties.

The critical detail is in § 4A-402(b)(2): “Unless the articles of organization specifically require otherwise, the operating agreement need not be in writing.” In other words, Maryland does not require a written operating agreement. An oral operating agreement is legally permissible. But as any business litigator will tell you, proving the existence and terms of an oral agreement in court is difficult, expensive, and uncertain. And if no operating agreement exists at all, the LLC defaults to the statutory rules in Title 4A, which are rarely what the members intended.

There are a few important structural rules built into § 4A-402:

• Initial agreement: The initial operating agreement must be agreed to by all persons who are then members (§ 4A-402(b)(1)).
• Amendment: If the operating agreement does not specify an amendment procedure, then all members must unanimously agree to any amendment (§ 4A-402(c)(1)). If the amendment is adopted without unanimous consent, it must be evidenced by a writing signed by an authorized person (§ 4A-402(c)(3)(ii)).
• Binding effect: A duly adopted operating agreement is binding on every person who is or becomes a member and every assignee of a membership interest, regardless of whether the person has signed the agreement (§ 4A-402(b)(5)).
• Court enforcement: A court may enforce an operating agreement by injunction or by granting other equitable relief (§ 4A-402(d)(1)).
• Single-member enforceability: An operating agreement of an LLC with one member is not unenforceable on the grounds that only one person is a party to it (§ 4A-402(d)(3)).

The Maryland LLC Act is intentionally a default-rule framework. The operating agreement is the mechanism by which the members override those defaults and establish the actual governance structure for their business. Choosing not to adopt an operating agreement is, in effect, choosing to accept the defaults.

If your Maryland LLC has no operating agreement, or if the operating agreement is silent on a particular issue, the default rules in Title 4A fill the gap. Here are the key defaults that apply:

Profit and loss allocation (§ 4A-503)

Profits and losses are allocated among the members in proportion to their respective capital contribution values. Distributions are made in proportion to each member’s right to share in profits. This means a member who contributed $10,000 to an LLC with $100,000 in total capital contributions receives 10% of profits and losses, regardless of how much work that member does or how much value that member brings to the business.

This is a critical default to understand. Many members assume profits will be split equally, or based on effort, or according to some other arrangement they discussed informally but never documented. Under the default rule, the allocation follows capital, not effort.

Voting and decision-making (§ 4A-403)

Members vote in proportion to their respective interests in profits (§ 4A-403(b)(1)). Ordinary decisions require the consent of members holding at least a majority of the interests in profits (§ 4A-403(b)(2)). Major actions require higher thresholds:

• Two-thirds vote: Required to dispose of all or substantially all of the LLC’s business or property, approve a merger, or approve a conversion (§ 4A-403(d)(1)).
• Unanimous consent: Required to file for bankruptcy, assign property for creditors, alter the allocation of profit or loss, alter distributions, or do any act that would make it impossible to carry on the ordinary business of the LLC (§ 4A-403(d)(2)).

Agency authority (§ 4A-401)

Each member is an agent of the LLC for the purpose of its business (§ 4A-401(a)(1)). This means any member can bind the LLC to contracts, obligations, and liabilities in the ordinary course of business, unless the operating agreement restricts that authority. In a multi-member LLC without an operating agreement, every member has the power to act on behalf of the company, which can be dangerous if the members do not share the same judgment about what the business should be doing.

Amendment (§ 4A-402(c))

Without a specified amendment procedure, any change to the operating agreement (or, by extension, the internal rules of the LLC) requires the unanimous consent of all members. This means a single dissenting member can block any governance change, even if every other member agrees.

Every operating agreement should begin with the foundational information about the LLC: its legal name as it appears in the articles of organization filed with SDAT, its principal office address, the date of formation, its purpose, and its duration (perpetual or for a fixed term). While this information may seem redundant with the articles, including it in the operating agreement creates a single comprehensive document that can stand on its own when presented to banks, landlords, investors, or counterparties.

The agreement should identify each member by name, list their initial capital contributions (whether in cash, property, or services), and specify each member’s ownership percentage. It should also address whether and when members may be required to make additional capital contributions (capital calls), the consequences of failing to make a required contribution, and whether the LLC can issue additional membership interests to new members.

Getting this section right is especially important because it directly affects the profit and loss allocation. If the operating agreement is silent, § 4A-503 allocates profits and losses based on capital contribution values. But the members may have agreed to something different, particularly in an LLC where one member contributes capital and another contributes expertise, labor, or intellectual property. Those arrangements must be documented explicitly.

The operating agreement should specify exactly how profits and losses are allocated among the members. Common approaches include allocation by ownership percentage, allocation by a negotiated ratio unrelated to capital, and special allocations for specific items of income, loss, deduction, or credit. If the allocation differs from ownership percentages, make sure a qualified tax advisor has reviewed the arrangement for compliance with IRC § 704(b) and the “substantial economic effect” rules in the Treasury Regulations, which require that allocations have economic substance and not exist solely for tax avoidance purposes.

The agreement should also address distributions separately from allocations. Allocation determines how profit and loss appear on each member’s Schedule K-1. Distribution determines when and how cash actually moves from the LLC to the members. These are different concepts, and the agreement should address both, including the timing and frequency of distributions and whether distributions require a vote or are at the discretion of the managers.

Maryland’s LLC Act gives members broad flexibility to structure management however they choose (§ 4A-402(a)(1)). The two most common approaches are:

• Member-managed: All members participate in managing the LLC and have authority to act on its behalf. This is the statutory default under § 4A-401.
• Manager-managed: One or more designated managers (who may or may not be members) have exclusive authority to manage the LLC. Members who are not managers typically do not have agency authority to bind the LLC.

The operating agreement should clearly state which structure the LLC uses, define the scope of management authority, identify which decisions require member approval versus manager discretion, and establish any limitations on the managers’ power. If the LLC is manager-managed, the agreement should also address how managers are appointed and removed, their compensation (if any), and their fiduciary duties to the members.

The operating agreement should establish clear voting thresholds for different categories of decisions. A common framework includes:

• Day-to-day decisions: Made by the manager(s) or by majority vote of the members, depending on management structure.
• Significant decisions: Require a supermajority or unanimous consent. These typically include admitting new members, taking on significant debt, entering into contracts above a certain dollar threshold, selling major assets, changing the LLC’s business purpose, and amending the operating agreement.
• Extraordinary decisions: Require unanimous consent. These typically include merging with another entity, dissolving the LLC, and filing for bankruptcy.

Tailoring voting thresholds is one of the most important functions of the operating agreement. The statutory defaults under § 4A-403 may not match the members’ expectations, particularly in LLCs where capital contributions are unequal but the members intend for management authority to be shared more evenly.

Under Maryland’s default rules, a member can generally assign their economic interest (their right to receive distributions and allocations of profit and loss) to a third party. However, the assignee does not become a member and does not receive any management or voting rights unless all other members consent (§ 4A-602). In practice, this means a member can transfer the economic rights but not the full membership interest without the other members’ approval.

A well-drafted operating agreement goes further. It typically includes:

• Restrictions on transfers without prior approval of the other members or a designated manager
• A right of first refusal giving the LLC or the remaining members the option to purchase the departing member’s interest before it can be sold to an outsider
• Permitted transfers (for example, transfers to family trusts or estate planning vehicles) that do not require consent
• Valuation methodology for the membership interest in any transfer scenario

Without transfer restrictions, you risk ending up in business with someone you did not choose, which is one of the most common triggers for business partner disputes.

What happens when a member dies, becomes permanently disabled, retires, or simply wants out? The operating agreement should address each of these scenarios with a clear buyout mechanism, commonly called a buy-sell provision. Key elements include:

• Triggering events: Death, disability, voluntary withdrawal, involuntary removal, bankruptcy of a member, or breach of the operating agreement.
• Valuation method: How the departing member’s interest will be valued. Common approaches include agreed-upon fixed values updated periodically, a formula based on book value or a multiple of earnings, or an appraisal by an independent third-party appraiser.
• Payment terms: Whether the buyout price is paid in a lump sum or in installments over time, and the interest rate on any deferred payments.
• Funding: Whether the LLC or the remaining members will fund the buyout, and whether life insurance or disability insurance will be used to fund death or disability buyouts.

Without buyout provisions, a member’s death or departure can create a crisis. The deceased member’s estate or heirs may hold an economic interest in the LLC with no clear path to liquidate it. The remaining members may be unable to buy out the interest without a valuation mechanism. And disputes over the value of the interest can drag on for years.

The operating agreement should specify the events that trigger dissolution of the LLC and the procedure for winding up its affairs. Under the Maryland LLC Act, dissolution can be triggered by the occurrence of events specified in the operating agreement or the articles, by the unanimous consent of the members, or by judicial decree (§ 4A-902 and § 4A-903). Without an operating agreement specifying dissolution triggers and procedures, the statutory defaults apply, and those defaults can produce outcomes the members did not anticipate.

A good dissolution provision addresses what vote threshold is required to dissolve, the order of priority for distributing remaining assets (typically debts and liabilities first, then return of capital contributions, then distribution of any surplus), and who will serve as the winding-up agent.

Including a dispute resolution provision in the operating agreement can save the members significant time and legal expense. Common approaches include a structured escalation from negotiation to mediation to binding arbitration, or a provision designating a specific court (such as the Circuit Court for the county where the LLC’s principal office is located) for any litigation. The agreement can also address whether the prevailing party in a dispute is entitled to recover attorney’s fees, which can be a meaningful deterrent to frivolous claims.

For more on the types of business disputes that arise in Maryland LLCs and the legal options available, see our guide on business partner disputes in Maryland.

Many sole owners assume that because they are the only member, there is no need for a written operating agreement. There is no partner to negotiate with, no competing interests to document, and no risk of a member dispute. While it is true that the risk profile is different for a single-member LLC, the operating agreement still serves several important functions.

Veil piercing protection. The primary benefit of an LLC is limited liability: the member’s personal assets are generally protected from the LLC’s debts and obligations. But that protection is not automatic. If a creditor or litigant can demonstrate that the owner treated the LLC as an alter ego rather than a separate entity, a court may “pierce the veil” and hold the owner personally liable. Maintaining a written operating agreement is one of the key factors courts consider when evaluating whether the LLC was operated as a genuinely separate entity. An operating agreement that establishes basic governance procedures, such as keeping separate bank accounts, documenting major decisions, and maintaining adequate capitalization, helps demonstrate that the owner respected the LLC’s separate existence.

Banking and financing. Many banks and lenders require a copy of the LLC’s operating agreement before opening a business bank account, issuing a line of credit, or processing a loan application. Without one, the process can be delayed or denied.

Future growth. If you ever plan to admit a new member, bring in an investor, or sell a portion of the business, having an operating agreement already in place provides a governance framework to build on. It is far easier and less expensive to amend an existing agreement than to negotiate one from scratch in the middle of a transaction.

Maryland law expressly supports this practice. Under § 4A-402(d)(3), an operating agreement of a single-member LLC is not unenforceable on the grounds that only one person is a party to it.

If single-member LLCs benefit from an operating agreement, multi-member LLCs need one. The difference is not a matter of degree but of necessity. Every multi-member LLC has at least two people (or entities) with financial interests in the same business, and wherever two or more parties have economic interests, disagreements are inevitable.

The most common disputes in Maryland multi-member LLCs involve:

• Profit sharing: Members who contributed different amounts of capital or who perform different amounts of work disagreeing about how profits should be divided.
• Management authority: Disputes about who has the authority to make specific decisions, hire and fire employees, enter into contracts, or commit the LLC to financial obligations.
• Member exits: A member who wants to leave the business and cash out their interest, but the remaining members disagree about the valuation or payment terms.
• Deadlock: Two equal (50/50) members who cannot agree on a fundamental business decision and have no mechanism for breaking the tie.
• Fiduciary duty breaches: Allegations that a managing member acted in their own interest rather than in the interest of the LLC.

A comprehensive operating agreement addresses all of these scenarios in advance. It establishes the rules of the road when everyone is getting along, so that when disagreements arise, there is a clear, pre-agreed framework for resolving them rather than a lawsuit. For more on how these disputes play out in practice, see our guide on business partner disputes and legal options in Maryland.

Maryland LLC owners sometimes confuse the articles of organization with the operating agreement, or assume that filing the articles is sufficient to establish the LLC’s governance. These are distinct documents with different functions.

One important rule: the operating agreement cannot be inconsistent with the articles of organization (§ 4A-402(a)). If there is a conflict between the two documents, the articles generally control. This is why it is important to review both documents together and ensure they are aligned, particularly regarding the LLC’s purpose, management structure, and any provisions in the articles that impose requirements on the operating agreement.

For a full analysis of where to form your LLC and what the articles of organization require, see our guide on whether Maryland small businesses should form an LLC in Maryland, Delaware, or Wyoming.

Online templates can provide a starting point for the simplest single-member LLCs. But for any LLC with multiple members, significant assets, or a complex ownership or management structure, a generic template is inadequate. Templates typically do not account for Maryland-specific statutory provisions, do not include provisions for capital calls or tax distributions, use boilerplate transfer restrictions that may not match the members’ intentions, and often omit buyout provisions entirely. Using a template without customization is like building a house on a foundation designed for a different property. The consequences may not appear immediately, but they will surface when the business faces a significant decision or dispute. For more on common contract mistakes Maryland business owners make, see our dedicated guide.

Many operating agreements are drafted without input from a tax advisor, and the result is an agreement that does not address how the LLC will be taxed or how it will handle the mismatch between allocated income and actual cash distributions. If your LLC has elected or is considering electing to be taxed as an S corporation, the operating agreement needs to reflect that election and comply with the single-class-of-stock requirement under IRC § 1361(b)(1)(D). Similarly, for LLCs taxed as partnerships, the agreement should include provisions addressing IRC § 704(b) allocations and the economic effect safe harbor.

Under § 4A-402(a), the operating agreement must be “not inconsistent with the articles of organization.” If the articles state that the LLC is member-managed but the operating agreement establishes a manager-managed structure, there is a conflict. If the articles specify a limited purpose but the operating agreement contemplates a broader scope of business, there is a conflict. These inconsistencies create legal uncertainty and can be exploited in disputes. Any time the operating agreement is drafted or amended, the articles of organization should be reviewed for consistency.

This is arguably the single most consequential omission in operating agreements. Without a buyout provision, there is no defined process for what happens when a member dies, becomes disabled, wants to retire, or needs to be removed. The result is often an LLC that is stuck: the departing member or their estate holds an illiquid interest with no clear path to monetize it, and the remaining members have no clear obligation or mechanism to purchase it. This gap frequently leads to business disputes and litigation.

An operating agreement is a living document. Members who draft a comprehensive agreement at formation but never revisit it as the business evolves can find themselves governed by provisions that no longer reflect the economic reality of the business. When new members are admitted, when the management structure changes, when the LLC takes on significant debt or acquires real property, or when a member’s role in the business materially shifts, the operating agreement should be reviewed and updated accordingly.

Your operating agreement should be reviewed and potentially amended when any of the following occurs:

• Admitting a new member or investor
• A member’s departure, death, or disability
• A change in ownership percentages or capital contributions
• A change in management structure (such as moving from member-managed to manager-managed)
• A significant change in the LLC’s business (new business lines, expansion into new markets, significant asset acquisitions)
• A change in tax elections (for example, electing S corporation status)
• Taking on significant debt or financing (lenders may require specific provisions)
• Legislative or regulatory changes that affect the LLC’s governance (for example, the 2026 Corporations and Associations revisions in SB 631/HB 996, which passed both chambers and, as of April 14, 2026, had been returned passed and were awaiting gubernatorial action)
• A dispute or near-dispute that reveals a gap or ambiguity in the existing agreement

As a general practice, reviewing the operating agreement at least once a year, ideally in connection with the LLC’s annual tax planning, is a good habit. For businesses with general counsel relationships, the attorney can incorporate this review into the ongoing advisory relationship.

No. Under Md. Code, Corps. & Ass’ns § 4A-402(b)(2), an LLC operating agreement need not be in writing unless the articles of organization specifically require it. However, a written operating agreement is strongly recommended because oral agreements are difficult to prove and enforce, and without any operating agreement the LLC will be governed by Maryland’s statutory default rules, which rarely match how the members actually intend to run the business.

If your Maryland LLC has no operating agreement, the default rules in Title 4A of the Corporations and Associations Article control. Under those defaults, profits and losses are allocated in proportion to each member’s capital contribution value (§ 4A-503), voting power follows profit interests (§ 4A-403), each member is an agent of the LLC with authority to bind it (§ 4A-401), and amendment of the LLC’s internal rules requires unanimous consent (§ 4A-402(c)). These defaults may not reflect the members’ actual business arrangement or expectations.

It is strongly recommended. Maryland law expressly provides that a single-member LLC’s operating agreement is enforceable (§ 4A-402(d)(3)). A written operating agreement helps demonstrate that the LLC is a separate legal entity from the owner, which is important for maintaining limited liability protection. Many banks, landlords, and lenders also require a copy of the operating agreement before doing business with the LLC.

No. An operating agreement is an internal document that is not filed with SDAT or any other state agency. The LLC’s articles of organization are the document that gets filed with SDAT. The operating agreement should be kept with the LLC’s internal records and made available to members and, when appropriate, to banks, lenders, or other third parties that request it.

Articles of organization are the formation document filed with SDAT to legally create the LLC. They contain basic information such as the LLC’s name, purpose, principal office in Maryland, and resident agent. The operating agreement is a separate, private document that governs the internal affairs of the LLC, including ownership percentages, profit and loss allocation, management structure, voting procedures, transfer restrictions, buyout provisions, and dissolution triggers. The articles create the entity. The operating agreement governs how it actually runs.

In most cases, yes. Maryland’s LLC Act is designed to be a flexible, default-rule framework. Section 4A-402 allows members to enter into an operating agreement to regulate or establish any aspect of the affairs of the LLC, the conduct of its business, or the relations of its members. However, the operating agreement cannot be inconsistent with the articles of organization, and certain statutory requirements and public policy constraints cannot be overridden by private agreement.

Under § 4A-402(c), if the operating agreement does not specify an amendment procedure, then all members must unanimously agree to any amendment. If the operating agreement does specify an amendment procedure, that procedure controls. Additionally, any amendment adopted without unanimous consent of the members must be evidenced by a writing signed by an authorized person of the LLC. Including a clear amendment provision in the operating agreement is important so that routine updates do not require the consent of every member.

Online templates may be adequate for the simplest single-member LLCs with no unusual circumstances, but they carry real risks for any LLC with multiple members, significant assets, or complex ownership or management arrangements. Generic templates rarely address Maryland-specific statutory provisions, do not account for the specific economic deal between the members, and often omit critical provisions such as buyout triggers, capital call procedures, deadlock resolution, and tax distribution requirements. For any LLC where the stakes justify professional attention, having a Maryland business attorney draft or review the operating agreement is a worthwhile investment.