Matt and Greg, two Delaware entrepreneurs, built a restaurant that worked and bought the real estate underneath it through an LLC split fifty-fifty. When the relationship fell apart, Matt wanted out, Greg didn't, and the fight ended up in court. They'd been careful enough to write an exit clause. It let Matt sell his ownership interest. It didn't release him from his personal guarantee on the mortgage, so he could walk away from the business and still be responsible for its debt.
The clause answered who could leave. It never said what leaving released. That gap is easy to miss when an operating agreement gets treated as paperwork instead of as a conversation.
The document spells out ownership percentages, officers, capital contributions, distributions, compensation, transfers, vesting, jurisdiction, and dissolution: who decides what, and what happens if. You may already have one you've never read, because a registered agent can generate boilerplate when the entity is set up. Read it closely and you'll find terms that don't fit the decisions you're actually making.
Its real job is to force the conversations founders avoid. Early on, everyone is in the honeymoon phase, and nobody wants to break the magic by asking what happens if one of them dies. That's exactly when to ask. Start with the end game, whether that's a living, a big exit, or outside capital, because plans to raise money are a big indicator of what the agreement should look like. Then settle who does what, and whether you're building a company or playing at business. If you're playing, skip the agreement.
The clauses that earn their keep cover the moment a partner stops being a partner. When a founder dies, the estate owns the equity, and the surviving partners never signed up to run a business with a spouse or children. One founder lost his co-founder and found the company holding key-man insurance and no buy-sell agreement. The co-founder's wife wanted to be bought out. The company needed the insurance money to replace him, and nothing in the operating agreement said what happened to his shares.
Departure is the quieter version. One co-founder quit to become a yoga instructor, told the others they didn't need to pay anything, and still owned a third of the company, riding appreciation built by the two who stayed. If a replacement needs equity, it should come out of the leaver's share. The agreement has to protect the other direction too, so two partners can't push out a third to grab the stake. A buy-sell clause settles the method now, even though the price will depend on the company's valuation when the day comes.
Money needs its own clarity. Equity is ownership. Salary is a paycheck for doing a job. Distributions are profits paid to owners, usually by member vote and in proportion to ownership. Partners don't always need the same thing: one coming off a big exit may not need cash right away while the other needs income to support a family. Settle it within the first six months, once revenue or traction shows up, and reread the agreement about once a year as the business changes.
Control follows ownership. Whoever holds more than fifty percent controls the company's decisions, including amendments to the operating agreement itself, so a minority partner's protections last only as long as the majority leaves them alone. Fifty-fifty trades that problem for deadlock. If you need the agreement to tell you who breaks a tie, the relationship is already broken. A rock-paper-scissors tiebreaker works for exactly that reason: nobody wants to lose a real decision to a hand game, so partners argue it out first.
Then there's the code. A founder who licenses existing software to the company instead of assigning it can sink a raise, because investors don't want a company that doesn't own its IP. The quieter version involves IP the company builds. Code piles up with no formal assignment, the technical co-founder holds the AWS login and the GitHub account, and when that founder walks away, the go-to-market partner is left with nothing. It has happened more than once.
Some of these questions are hard to ask a partner directly. An experienced founder from outside the partnership finds it easier to ask what happens if one of you is incapacitated or gets ALS. One founder in the last stages of ALS, struck out of the blue, didn't have time to wind the business down properly and is now stuck in debt.
A perfectly worded operating agreement won't fix a bad co-founder. It sets the rules of the game while everyone still likes each other. Write it during the honeymoon, then reread your exit clause and check what it actually lets you walk away from.
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