Massachusetts Business Attorney · Business Law
Massachusetts does not require a limited liability company to have an operating agreement, and you never file one with the state. The Certificate of Organization you file with the Secretary of the Commonwealth covers only basics like the LLC’s name, address, resident agent and business purpose. Everything about how the company actually runs (who owns what, who decides, who gets paid, and what happens when someone leaves) belongs in the operating agreement.
Under the Massachusetts LLC Act, an operating agreement can even be oral. That is exactly the problem. When members disagree, an unwritten understanding is hard to prove, and the Act’s default rules fill the gaps, whether or not they fit your business.
Do you need one if you are the only member?
Yes. A single-member LLC still benefits from a written operating agreement. It shows that the company is a separate entity with its own rules, which helps protect your personal assets. It also says who can run the company and what happens to it if you die or become incapacitated. Banks and lenders often ask to see one before opening accounts or extending credit.
What happens without a written operating agreement?
If your agreement is missing or silent, Chapter 156C supplies default rules. A few that surprise owners:
- Every member can act for the company. Unless the agreement says otherwise, management is vested in the members, and each member may sign documents and act for the LLC (§ 24).
- Profits are not automatically split equally. Profits and losses are allocated by the agreed value of each member’s contributions, as recorded in the company’s records (§ 29). If no one kept those records, expect an argument.
- A departing member can demand a payout. Unless a written operating agreement provides otherwise, a member who resigns is entitled to the fair value of their interest within a reasonable time (§ 32). That can be a serious cash-flow problem for a small company.
- A buyer of a member’s interest gets money, not a vote. An assignee receives only economic rights and does not become a member or gain management rights unless the other members approve or the agreement allows it (§ 39).
- A member’s creditor can reach distributions. A judgment creditor of a member can ask a court for a charging order against that member’s interest in the LLC (§ 40).
- Older LLCs can dissolve when a member leaves. For LLCs formed before 1997, a member’s death, resignation or bankruptcy dissolves the company unless the remaining members agree within 90 days to continue, or a written operating agreement already gives that right (§ 43). Newer LLCs don’t dissolve automatically, but without an agreement no one knows who gets the departing member’s share, or at what price.
What a Massachusetts operating agreement should cover
Every business is different, but a well-drafted operating agreement usually addresses:
- Members and ownership. Who the members are, what percentage each owns, and what each contributed (cash, property or services).
- Future capital. Whether members must contribute more money later, and what happens if one doesn’t.
- Management. Whether the LLC is member-managed or manager-managed, who can sign contracts and bind the company, and spending limits.
- Voting. Which decisions need a simple majority, which need unanimous consent (selling the business, taking on major debt, admitting a new member), and how to break a deadlock.
- Distributions. When profits are paid out, in what order, and whether the company makes tax distributions so members can pay tax on income allocated to them.
- Transfers and buy-sell terms. Rights of first refusal, and what happens on a member’s death, disability, divorce, retirement or expulsion, including how the interest is valued and paid for.
- Admitting new members and the vote needed to do it.
- Duties and conflicts. How members handle competing businesses, related-party deals and confidential information.
- Disputes. Whether disagreements go to mediation or arbitration before court.
- Dissolution. What triggers it, and how assets are sold and debts paid when the company winds up.
- Records and amendments. What books the company keeps and how the agreement itself can be changed.
If a member also works for the company, be careful with non-compete language. Massachusetts’s noncompetition law limits non-competes for employees, so those terms deserve a lawyer’s review.
Can you use an online template?
Templates are a starting point, but they are written for every state at once. They often skip buy-sell terms, use valuation methods that don’t fit a small business, or include tax-allocation language no one at the company understands. The gaps show up later, during a dispute, a buyout or a sale. That is exactly when the agreement matters most.
A note on taxes
How your LLC is taxed affects what the agreement should say about allocations and distributions. By default, a single-member LLC is disregarded for federal income tax purposes and a multi-member LLC is taxed as a partnership, unless the LLC elects corporate or S corporation treatment.
The tax information above is general information, not tax advice. Talk with an accountant or tax advisor about how your LLC should be taxed.
When to update your operating agreement
Review it whenever something changes: a new member joins or one leaves, the company raises money or takes on significant debt, management changes, the tax election changes, or the business grows into something the original agreement never anticipated.
Getting help with your operating agreement
An operating agreement is one of the most important documents your business will ever have. It is far easier to get right at the start than to fix during a dispute. Learn more about our Massachusetts business law services, why an LLC’s liability protection has limits, and why filing online isn’t the whole job. Running a counseling or therapy practice? See starting a counseling or therapy LLC in Massachusetts. To have an operating agreement drafted or reviewed, contact our office.
About the Author
Richard Alan Gaudet, Esq. is a Massachusetts attorney at the Law Offices of Richard Alan Gaudet, LLC in Middleton, Massachusetts, who advises clients on LLC formation, operating agreements and business law. His practice focuses on professional license defense, business law and litigation, family law, and landlord representation, serving clients across Northern, Eastern, and Central Massachusetts. Reach him at 978-273-8337 or rgaudet@gaudetlawoffice.com. Office: 35 Village Rd., Ste 100, Middleton, MA 01949.
ABOUT THIS ARTICLE
This article was prepared by a Massachusetts attorney and is provided solely for general informational and educational purposes directed to members of the general public. It does not constitute legal advice and does not create an attorney-client relationship. The law applicable to any particular situation depends on the specific facts and circumstances of that matter. Readers are encouraged to seek the advice of a licensed Massachusetts attorney before taking any action.
