An operating agreement is the organic document of a Limited Liability Company.  It defines the relationship of the members among each other, the relationship of members with the company, and how the company will be managed / operated.  One important component of an operating agreement, in the context of a multiple member limited liability company, is the inclusion of provisions which restrict the transferability of membership interests.  In the context of a corporation, this would normally be handled in a buy-sell agreement – but for a limited liability company, it is typically addressed in the operating agreement (although it certainly could be addressed in a separate buy-sell agreement among the members.)

The importance of these provisions is to maintain the closely held structure of the LLC.  If members are allowed to freely transfer their interests, or if those membership interests are freely allowed to transfer via involuntary means (i.e. death, divorce, bankruptcy), members who originally started the business with one or more particular members may be forced to continue the business with new members that they do not necessarily approve of.  Putting restrictions on transferability can solve this issue by giving members control over how/when/why membership interests can be transferred.

If you are interested in learning more about what types of things should typically be considered in these provisions, check out my post on buy-sell agreements.

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