Washington LLC Operating Agreement: A Drafting Guide
A Washington LLC operating agreement, called the "limited liability company agreement" in Chapter 25.15 RCW, is the document that determines how the members actually run the company, share profits, resolve disputes, and exit. Chapter 25.15 RCW is intentionally flexible. That flexibility is the entire point: founders can tailor most of the internal rules to their actual cap table. But "flexible" does not mean "anything goes." The statute carves out specific provisions that cannot be eliminated or limited by agreement, and those carve-outs are where founders get into trouble.
Quick answer
If a Washington LLC does not have a written operating agreement, the default rules in Chapter 25.15 RCW fill in every blank. Those defaults are perfectly reasonable for a generic LLC. They are usually wrong for the LLC you actually formed, because the legislature did not know your cap table, your voting expectations, your exit plan, or which member contributed the IP. The job of the operating agreement is to override the defaults where the defaults are wrong, and to leave them in place where they happen to fit.
Why a Washington operating agreement matters
The statutory default rules in Chapter 25.15 RCW are designed to apply when the operating agreement is silent. RCW 25.15.018(1) says the agreement governs relations among members and the rights and duties of managers; RCW 25.15.018(2) says that to the extent the agreement does not address a matter, the chapter governs it.
That single sentence is the whole reason this document is important. Every issue the agreement does not cover, the statute covers, using rules that may or may not match what the members would have chosen. Common default rules that surprise founders include:
- Default voting on most matters is per-member, not per-capital-percentage, unless the agreement says otherwise.
- Members generally do not have an automatic right to receive distributions; distributions are at the discretion of the manager or the members under whatever process the agreement provides.
- An assignee of an LLC interest is generally entitled to economic rights only, not management rights, unless the agreement provides otherwise.
- On dissociation, the dissociated member or successor generally holds only the economic interest unless the agreement provides a buyout mechanism.
Multi-member risk areas
Most Washington founder disputes I see can be traced back to one of seven things the operating agreement either did not address or addressed badly. Each of these deserves its own section in the agreement:
1. Capital contributions
- Initial capital contributions in cash, services, or property: exact amounts, dates, and form.
- Whether members can be required to make additional capital contributions, and if so, on what notice and process.
- Consequences if a member fails to make a required contribution (forfeiture, dilution, loan conversion).
- Valuation method for non-cash contributions, especially IP.
2. Voting
- Member voting threshold for ordinary matters versus extraordinary matters (sale of the company, dissolution, admission of new members, amendment of the agreement, change in tax election).
- Per-unit voting versus per-capita voting.
- Manager voting and director-level decision rules in a manager-managed LLC.
- Quorum and meeting mechanics (written consent in lieu of meeting is almost always preferable for closely held LLCs).
3. Transfers of interests
- Prohibition on transfer without consent, with carve-outs for estate planning and affiliates.
- Right of first refusal in favor of the LLC, then the other members, on any voluntary transfer.
- Tag-along and drag-along rights in any future financing or sale.
- What happens on involuntary transfer (death, divorce, bankruptcy, judgment creditor), typically a forced buyout at a defined price.
4. Dissociation
When can a member voluntarily leave? What happens to their interest? Default Washington law converts most departing members into mere economic interest holders without management rights. That is rarely what either side wants. A defined buyout, with a specified valuation method, is almost always the right answer.
5. Deadlock provisions
A 50-50 LLC with no deadlock provision is a lawsuit waiting to happen. Useful structures include:
- Tie-breaking outside director or mediator.
- Buy-sell triggered by deadlock (Texas shootout, Russian roulette, fairness opinion buyout, named-appraiser buyout).
- Statutory dissolution as the last resort under RCW 25.15.274, with the express understanding that the agreement cannot vary the court's power to decree dissolution under that section.
6. Buyout triggers
- Death or disability of a member.
- Termination of employment (if a member is also an operational employee).
- Cause-based removal (fraud, material breach, conviction of a felony involving the LLC).
- Voluntary departure outside of a defined window.
- Deadlock.
7. Tax distributions
An LLC taxed as a partnership allocates income to members whether or not it distributes cash. If the LLC retains all its earnings, members can owe federal income tax on phantom income. The standard fix is a mandatory tax distribution: the LLC must distribute, at a minimum, an amount equal to each member's allocated taxable income multiplied by an agreed assumed combined federal and state tax rate. Without that clause, the LLC has every right to retain cash and leave members with the tax bill.
IP assignment
If any member contributed IP at formation (code, brand, prior work product), the operating agreement should reference and require execution of a separate IP assignment agreement transferring that IP to the LLC. Forming the LLC alone does not transfer IP from a founder to the entity. This is one of the most common founder-cleanup gaps I see.
Restrictions on transfer
Beyond the right of first refusal noted above, a closely held LLC almost always benefits from a flat prohibition on transfer to competitors and a securities-law restriction that any transfer must comply with applicable federal and Washington securities laws.
Nonwaivable limits under RCW 25.15
This is the part of the statute founders most often misunderstand. RCW 25.15.018(3) lists a series of provisions that an LLC agreement may not vary. The two most important categories, in my experience, are duties and liability.
Duties: RCW 25.15.038(6)
Subsection (6) provides that fiduciary duties can be modified, expanded, restricted, or eliminated by the agreement, but with two specific carve-outs that cannot be waived:
Liability: RCW 25.15.038(7)
Subsection (7) allows the agreement to eliminate or limit personal liability of a member or manager, but again with carve-outs that cannot be waived:
What this means practically
An LLC agreement that says "the manager has no duties to the members" is not enforceable in Washington to the extent it would eliminate the duty to avoid intentional misconduct, knowing violations of law, improper distribution liability under RCW 25.15.231, or the implied contractual duty of good faith and fair dealing. Aggressive form agreements pulled from online templates regularly cross this line. They are not safer for the manager; they are just wrong on Washington law.
RCW 25.15.018(3) also lists other nonwaivable items, including the LLC's power to sue and be sued, certain records and information rights, the requirement to wind up under specified circumstances, and the court's power to decree dissolution under RCW 25.15.274. Read the full list in the statute before relying on any aggressive contractual override.
Washington legal leverage
Chapter 25.15 RCW gives Washington LLCs broad freedom of contract for member-to-member economics and governance. It also draws a clear line at intentional misconduct, knowing violation of law, improper distributions, and good faith and fair dealing. The leverage point for a careful operating agreement is to use the freedom of contract aggressively for economic and procedural matters while staying clearly inside the statutory carve-outs. That is the agreement that actually holds up when one member sues another.
Practical drafting checklist
- Cap table with capital contributions, percentages, and any preferred or profits-interest classes.
- Manager-managed or member-managed, with named initial managers.
- Voting thresholds for ordinary and extraordinary actions.
- Distribution waterfall: mandatory tax distributions, then discretionary distributions.
- Transfer restrictions with right of first refusal and consent requirements.
- Buyout triggers and valuation method (book value, agreed multiple, qualified appraiser).
- Deadlock mechanism.
- Indemnification of members and managers, drafted within the limits of RCW 25.15.041.
- Duty modification language drafted within the limits of RCW 25.15.038(6)-(7).
- IP assignment confirmation and required separate IP assignment agreement.
- Confidentiality and non-solicitation (Washington noncompete law is restrictive; see Chapter 49.62 RCW).
- Amendment process with a defined supermajority for material changes.
- Dispute resolution: mediation first, then a defined venue or arbitral forum.
- Signature pages for every member and manager.
When attorney drafting matters
For a single-member Washington LLC with no outside members, a clean form agreement is usually fine. For any LLC with two or more members, I do not consider a generic template safe. The cost of getting the operating agreement right is small compared to the cost of unwinding a founder dispute under a poorly drafted or silent agreement.
Service packages
Related resources
For the formation side, see my Washington LLC Formation Guide and Washington Corporation Formation Guide. For the California comparison, see the California LLC Operating Agreement Generator and single-member LLC OA generator.
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