South Dakota LLC Operating Agreement — What to Include

An operating agreement is a written contract among the members of an LLC that governs how the company is owned and run. It's the equivalent of a corporation's bylaws and shareholder agreement rolled into one, but far more flexible. It's an internal document — you never file it with the South Dakota Secretary of State, and it doesn't appear in any public record. It lives with your company's records and binds the members to its terms.

Not required, but genuinely important

South Dakota law doesn't require an LLC to adopt an operating agreement. You can form and operate without one. But "not required" isn't the same as "not needed." Without an operating agreement, your LLC is governed entirely by South Dakota's default statutory rules under the state's Limited Liability Company Act — a set of one-size-fits-all provisions that decide how profits are split, how decisions are made, and what happens when a member leaves. Those defaults are designed to cover the gaps, not to reflect your specific deal.

What it does for you

• Overrides unhelpful defaults — you set your own rules for ownership, profits, voting, and exits instead of accepting the state's.
• Prevents and resolves disputes — when members disagree, the agreement is the reference that settles it, rather than a courtroom.
• Reinforces the liability shield — especially for single-member LLCs, a formal operating agreement helps demonstrate the LLC is a genuine separate entity, which courts consider when someone challenges your liability protection.
• Satisfies third parties — banks routinely ask for an operating agreement when you open a business account, and investors or partners will expect one.

The financial core of the operating agreement defines who owns the company, what they put in, and how the money comes out. Getting these terms explicit up front prevents the most common and most damaging disputes.

Ownership interests

Spell out each member's ownership percentage — often called membership interest or units. This determines each member's stake in the company and typically drives voting power and profit distribution. Be precise: "50/50" between two founders is clear, but a three-way split or a weighted arrangement needs exact numbers documented.

Capital contributions

Record what each member contributed to get the LLC going — cash, equipment, property, or services — and the value assigned to each contribution. Just as important, address future contributions: are members obligated to put in more capital later if the company needs it, and what happens if a member can't or won't? Silence here causes real friction when the business needs cash.

Profit and loss allocation

Define how profits and losses are allocated among members. The common default is to match ownership percentages, but you don't have to — the agreement can allocate profits differently from ownership if the members agree and it's structured properly. Spell out the method so there's no ambiguity at tax time.

Distributions

Allocation (how profit is assigned on paper) and distribution (when cash actually gets paid out) are different things. Specify when and how the LLC distributes cash to members — on a schedule, at the managers' discretion, or when certain thresholds are met — and in what priority. Members should know what to expect and when.

The operating agreement defines who runs the company and how decisions get made — the part that keeps day-to-day operations from stalling and keeps major moves from being made unilaterally.

Management structure

State whether the LLC is member-managed or manager-managed, consistent with what you declared in your Articles of Organization. In a member-managed LLC, the owners run the business directly. In a manager-managed LLC, designated managers (who may or may not be members) handle operations while other members stay passive. Define the managers' authority and how they're appointed or removed.

Voting rights

Establish how voting works. Are votes weighted by ownership percentage, or does each member get one vote regardless of stake? What matters routinely can be decided by a simple majority, while major decisions — admitting a new member, selling the company, taking on significant debt, amending the agreement itself — often require a supermajority or unanimous consent. Define which decisions need which threshold.

Meetings and records

LLCs are more informal than corporations, and South Dakota doesn't impose the same rigid meeting requirements. Still, it's worth stating how members will make and document decisions — whether by meeting, written consent, or otherwise — so there's a clear record when it matters.

Officers and roles

If the LLC will have designated roles — a managing member, a treasurer, someone authorized to sign contracts or bind the company — define those roles and their authority so third parties and members alike know who can act on the company's behalf.

The provisions that matter most in a crisis are the ones covering what happens when a member wants out, dies, or the company winds down. These are precisely the terms that are painful to negotiate after a dispute has already started, so they belong in the agreement from day one.

Transfer of membership interests

Decide what a member can and can't do with their interest. Most operating agreements restrict transfers so a member can't sell their stake to an outsider without the other members' consent. Common tools include a right of first refusal (the LLC or remaining members get first crack at buying) and approval requirements for any new member. Without these, South Dakota's defaults may allow economic interests to change hands in ways you didn't intend.

Buyouts and departing members

Address how a departing member is bought out — the valuation method, payment terms, and triggering events (voluntary exit, death, disability, bankruptcy). A clear buyout formula turns a potentially bitter negotiation into a mechanical calculation, which protects both the leaving member and those who remain.

Death, disability, and succession

Specify what happens to a member's interest on death or incapacity — whether it passes to heirs, must be bought out, or is handled some other way. For family businesses and closely held LLCs, this succession planning prevents an ownership interest from ending up somewhere the other members didn't expect.

Dissolution

Define the circumstances under which the LLC can be dissolved, the member vote required, and how remaining assets are distributed after debts are paid. Having this mapped out means that if the company ends — by choice or by circumstance — the wind-down follows a plan the members agreed to rather than a scramble.

An operating agreement isn't just for partnerships, and it isn't a one-time document you sign and forget.

Why single-member LLCs need one too

If you're the only member, it can feel pointless to write an agreement with yourself. It isn't. For a single-member LLC, the operating agreement is one of the clearest pieces of evidence that the LLC is a real, separate entity rather than an alter ego of the owner — and that distinction is exactly what a court examines when someone tries to pierce the veil and reach your personal assets. It also documents your contributions, how the company is managed, and what happens to the business if something happens to you. Banks frequently ask for it, too.

Keep it updated

Your operating agreement should evolve with the company. Revisit and amend it when you add or remove a member, change ownership percentages, shift from member-managed to manager-managed, or materially change how profits are split. An agreement that no longer reflects reality can create more confusion than clarity, so treat amendments as a normal part of running the LLC.

Getting it right

Mainstay Filing is a filing service, not a law firm, so we don't draft custom operating agreements or provide legal advice on the terms — that's genuinely a job for an attorney when your ownership arrangement is anything but simple. What we can do is get your LLC properly formed with the state so you have a real entity to build the agreement around. For a straightforward single-member LLC, a solid template is often a reasonable starting point; for multi-member arrangements with meaningful money at stake, having a lawyer review or draft the agreement is money well spent.