Starting a business in Utah often begins with forming a Limited Liability Company (LLC)—a flexible and popular choice for small business owners. One question that frequently comes up is whether an Operating Agreement is required. While Utah law does not mandate an Operating Agreement, skipping this critical document can expose your business to unnecessary risk.
In this post, we’ll explain what an Operating Agreement is, whether you need one in Utah, and why having one is one of the smartest decisions you can make as a business owner.
What Is an Operating Agreement?
An Operating Agreement is a legal document that outlines how your LLC will be run. It sets the rules for:
- Ownership percentages
- Voting rights
- Profit and loss distribution
- Responsibilities of each member or manager
- Procedures for adding or removing members
- What happens if someone wants out or dies
- How disputes will be resolved
Think of it as your business’s internal rulebook. Without one, your LLC defaults to generic rules provided by Utah law, which may not reflect your intentions or protect your interests.
Is an Operating Agreement Required in Utah?
No, Utah law does not require LLCs to have an Operating Agreement. However, the absence of a legal requirement doesn’t mean it’s a good idea to go without one.
Here’s why:
- If you don’t create your own rules, the state’s default rules apply.
- Courts will assume you intended to operate under those default rules unless you can prove otherwise.
- A handshake deal or verbal understanding between partners carries almost no legal weight.
Even single-member LLCs benefit from having an Operating Agreement on file to show separation between personal and business affairs—a critical factor in maintaining liability protection.
Why Every Utah LLC Should Have an Operating Agreement
1. Protects Your Limited Liability Status
An Operating Agreement helps prove that your LLC is a legitimate separate entity. If you’re ever sued or audited, it’s one of the key documents courts and regulators will look for.
2. Prevents Internal Disputes
Whether you’re in business with a friend, spouse, or sibling, disputes happen. A clear Operating Agreement outlines roles, expectations, and exit plans so disagreements don’t become lawsuits.
3. Clarifies Ownership and Profit Sharing
Without written terms, disputes over ownership percentages, distributions, and buyouts can get messy—and expensive.
4. Shows Professionalism to Banks and Investors
Lenders, partners, and even certain vendors may ask for your Operating Agreement when doing due diligence.
5. Gives You Control
Customizing your Operating Agreement allows you to create terms that fit your unique business, not just rely on the generic rules built into Utah’s LLC Act.
Common Misconceptions About Operating Agreements
“I’m the only member, so I don’t need one.”
Wrong. Even single-member LLCs benefit from a written agreement to prove the business is truly separate from personal assets.
“We trust each other—we don’t need a formal agreement.”
Bad idea. Trust is important, but legally enforceable agreements are better. A partnership gone wrong without an Operating Agreement can be devastating.
“I’ll get to it later.”
Too late might be when a dispute or liability issue is already on the table. You need this document from day one.
What Should Be in a Utah LLC Operating Agreement?
While your Operating Agreement can be tailored to your needs, it should generally include:
- Business purpose and structure
- Capital contributions of each member
- Voting procedures
- Rules for profit and loss allocation
- Membership changes and buyouts
- Dissolution process
- Dispute resolution terms (e.g., mediation, arbitration)
Having a professionally drafted agreement ensures your business is not only legally compliant but also well-protected and prepared for growth.
Need Help Drafting or Reviewing an Operating Agreement?
Whether you’re launching a new LLC or reviewing your current structure, it pays to have an attorney involved. An Operating Agreement is too important to DIY with a template pulled from the internet.
Contact Duckworth Legal Group Today
We help Utah small business owners form and protect their companies with tailored, enforceable Operating Agreements.
Call us: (801) 882-7444
Email us: info@duckworthlegalgroup.com
Staying ahead of regulatory changes is part of protecting your business long-term. See our breakdown of 2025 legislative changes affecting Utah small businesses to make sure you’re fully compliant.
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