Why Your LLC’s Operating Agreement Actually Matters (and Why Templates Usually Fail)
If you’ve formed a Limited Liability Company (LLC) in Oregon or Idaho—or you’re about to—you’ve probably seen references to an “operating agreement.” Maybe you downloaded a free template, changed a few names, and moved on.
But here’s the thing: a generic operating agreement won’t protect your business when it matters most. And if you don’t have one at all, the state will make decisions for you—usually in ways that don’t reflect your actual intentions.
This post explains why operating agreements matter, what Oregon and Idaho law says about them, and what can go wrong when you rely on boilerplate.
What Is an Operating Agreement?
An operating agreement is the internal contract that governs your LLC. It lays out:
Who owns what
How decisions are made
How profits and losses are divided
What happens if a member leaves, dies, or wants to sell their share
Without one, you default to state law—and those default rules weren’t designed with your business in mind.
What the State Decides If You Don’t
Both Oregon and Idaho have adopted the Uniform Limited Liability Company Act. It allows you to set your own rules in writing. But if you don’t, here’s what the state assumes:
Equal profit and loss sharing, regardless of who invested what
Equal voting rights, even if ownership percentages differ
No buy-sell terms, meaning member exits are messy and unstructured
Dissolution upon death, unless other members act fast to stop it
This can lead to confusion, deadlock, and sometimes complete business failure.
Real-World Examples: When Templates Fail
Boise Digital Agency – Unequal Effort, Equal Ownership
Two partners start an agency. One invests $60,000; the other brings clients and part-time involvement. They use a free template that defaults to equal ownership and voting. Tensions mount when one wants to reinvest profits and the other wants distributions. The agreement doesn’t help. A buyout turns chaotic, expensive, and almost collapses the business.
Portland E-Commerce Company – Silent Investor, Loud Opinions
An investor puts in money but agrees not to be involved operationally. The default voting structure gives her equal decision-making power. Soon, she’s micromanaging key decisions. The founders feel paralyzed, and there’s no contractual way to remove or buy her out.
Eugene Food Truck – No Exit Plan
Two siblings run a business. One dies unexpectedly. With no operating agreement, that person’s interest passes to their estate—now controlled by a spouse and three adult children. The surviving sibling is suddenly outvoted, without a plan for buyout, valuation, or management.
These aren’t hypotheticals—they’re patterns I see repeatedly in my practice.
What a Real Operating Agreement Should Include
1. Capital Contributions
Spell out who’s contributing what—cash, property, labor, or IP. Oregon and Idaho allow non-cash contributions, but if you don’t define them, expect disputes later.
2. Profit Distributions
Want them to match ownership or workload? Then say so. Otherwise, the default is equal shares—whether that makes sense or not.
3. Voting Rights
Customize them to reflect ownership or role. Include tie-breakers and voting thresholds for major decisions.
4. Buy-Sell Provisions
How are ownership interests valued? Who gets to buy them? Over what timeline? Without this, exits become crises.
5. Death and Disability Terms
Clarify what happens if a member dies or becomes incapacitated. If you don’t want a partner’s spouse suddenly owning part of the business, write that down.
6. Membership Changes
How are new members admitted? What happens when one wants out? What protections exist against unwanted transfers?
7. Liability Formalities
Courts in Oregon and Idaho can pierce the veil if your LLC is sloppy—no records, no agreement, co-mingled funds. A strong operating agreement helps prove you’re running a legitimate, separate business.
Why Free Templates Don’t Cut It
Most templates are:
Written generically for national use (not Oregon or Idaho law)
Too vague to resolve actual disputes
Silent on key issues like exits, valuation, and deadlock
Legally inconsistent or internally contradictory
Worse, they lull business owners into a false sense of security—until something goes wrong.
What To Do Instead
Get an agreement that reflects your business—its structure, its owners, its goals. It doesn’t have to be 50 pages. But it does have to be clear, customized, and complete.
At Track Town Law, I help business owners across Oregon and Idaho draft operating agreements that actually work. Clean language. No filler. No bloated legalese. Just the structure your business needs to avoid unnecessary risk.
Book a consultation here if you’re forming a new LLC or rethinking your existing one. Business services are billed hourly, and we’ll tailor everything to your needs—no upselling, no fluff.
This post is based on Episode 5 of the Doing Business As podcast. If you’d rather listen, or want to share this with a business partner or CPA, you can find the episode here in the Track Town Law learning center, or wherever you get your podcasts.
Next Up:
LLC vs. S Corp—what’s the difference, and should you make the switch? We’ll walk through the tax treatment, common misconceptions, and how to decide what fits your business best.
