Own Part of a Company? Know What You Actually Own.
Your ownership, vesting, what a capital call or a distribution would do to you, and what you would be paid if you had to sell, read from your position among the owners.
Quick answer
What should I check in an LLC operating agreement?
Check your ownership as written; whether more capital can be demanded and what happens if you do not fund it; the order in which distributions are paid and whether there are tax distributions; who controls and how managers are removed; how the agreement can be amended; the buy-sell triggers and price; vesting and leaver terms; and whether fiduciary duties are limited or waived.
Who this operating agreement review is for
- Minority members and passive investors in an LLC or partnership
- Founders whose ownership vests over time
- Managing members and managers who run the company
- Majority owners setting up or amending the agreement
What's at stake
The Operating Agreement clauses most people miss, and what they can cost you.
A capital call you cannot fund can shrink your stake
Penalty dilution credits the members who cover your share at 150% or more. Enter the size of a call and we show your percentage if you fund it and if you do not.
The same percentage can mean very different money
Return of capital, a preferred return and a manager’s promote are paid in order. Enter a distribution and we run it through your agreement’s waterfall, member by member.
The buy-sell clause prices your stake when you cannot negotiate
Death, divorce, departure or removal can trigger a sale at a formula price, sometimes with a discount. Where the agreement gives the figures, we work out what you would receive.
What the operating agreement review checks
- Ownership table: units, percentages, classes and capital
- Vesting, cliff and acceleration, with dates
- Capital calls and the penalty for not funding
- Distribution waterfall, preferred return and promote
- Who controls, removal, vetoes and amendments
- Transfers, drag-along and tag-along
- Buy-sell triggers, price and forced sale
- Fiduciary duties, non-competes and information rights
What you get
- The ownership table as written, checked in code
- Vesting cliff and fully vested dates
- Your share after a capital call you fund, and one you do not
- A distribution run through the waterfall, and the buy-sell price where the figures are given
How to review a operating agreement agreement
- 1
Upload the agreement
The operating or partnership agreement with its schedule of members, units and capital, and any amendments.
- 2
Choose your position and state of formation
Minority, majority, managing, passive or founder; and the state the company was formed in, which we also read from the agreement.
- 3
Run your scenarios
Pick your row, then enter a capital call or a distribution to see what it does to you, calculated in code.
- 4
Raise the gaps
Questions for the other owners, a redline and a negotiation email.
7 red flags in a operating agreement agreement
What the review looks for first, and why each one matters.
Unlimited capital calls with penalty dilution or forfeiture
A call you cannot meet can move much of your stake to those who can.
No tax distributions
You can owe tax on profits you never receive.
Amendment by majority, with no consent right for affected members
Every other protection can be voted away.
Forced sale without cause at a formula price
The others can buy you out whenever the formula undervalues the company.
Fiduciary duties eliminated
Protection against self-dealing becomes only what the agreement’s words say.
A drag-along with no tag-along
You can be forced to sell, but not allowed to join a sale.
Vested units bought back at cost for a “bad leaver”
Years of vested work can be taken at a fraction of its value.
Operating Agreement terms explained
- Operating agreement
- The contract among an LLC’s members governing ownership, management, money and exits.
- Capital call
- A demand that members contribute more money to the company.
- Penalty dilution
- Dilution of a member who does not fund a call, at more than the proportional rate.
- Distribution waterfall
- The order in which distributions are paid: for example capital back, then a preferred return, then a split.
- Preferred return
- A return paid to some members before others share in profits.
- Promote (carried interest)
- A share of profits paid to the manager or sponsor above their ownership.
- Buy-sell provision
- Terms setting when a member’s interest must or may be sold, and at what price.
- Drag-along and tag-along
- A majority’s right to force all members into a sale, and a minority’s right to join one.
Why review it with ClauseAudit
Results in minutes
Most contracts are read in about a minute; very long documents are split, read in full and returned as one report.
Read for your state
The state of formation’s LLC or partnership statute sets what the agreement can override. We show the general US position and tell you exactly what to confirm locally; we cite a state rule only once it has been checked against its source.
A fraction of a lawyer’s fee
From $19 a review. Take the report to an attorney and the conversation starts where it matters.
Plain English + a redline
Every risk explained, with a downloadable redline and a negotiation email.
One plan covers all eleven analyzers: Employment, Freelance, NDA, SaaS, Lease, Commercial Lease, Equipment & Vendor, MCA & Business Loan, Franchise, Business Purchase and Operating Agreement. Use your credits on any contract type.
Operating Agreement contract FAQs
What should I check in an LLC operating agreement?
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Check your ownership as written; whether more capital can be demanded and what happens if you do not fund it; the order in which distributions are paid and whether there are tax distributions; who controls and how managers are removed; how the agreement can be amended; the buy-sell triggers and price; vesting and leaver terms; and whether fiduciary duties are limited or waived.
There are several members. Whose side are you on?
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Yours. You tell us your position (minority member, majority member, manager, passive investor or founder with vesting) and every clause is read from there. A clause that binds everyone equally is described as mutual, not as a win for anyone.
Which state’s law applies?
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The state where the company was formed, not where you live or where it operates. That state’s statute decides, for example, whether fiduciary duties can be eliminated. Choose it when you upload, and we also read it from the agreement and tell you if the two differ.
Can you tell me what my stake is worth?
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No. We show what the agreement’s own formulas produce where it gives the figures, and what happens under a capital call or a distribution you choose. What the company is worth, and how any of this is taxed, are questions for an accountant.
Does this work for partnership agreements?
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Yes. General and limited partnership agreements are read the same way; the general partner takes the manager’s place.
Which state’s law applies to my operating agreement?
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Usually the state where the company was formed, not where you live or where it operates. That state’s statute decides what the agreement can override, such as whether fiduciary duties can be eliminated.
Can you tell me what my stake is worth?
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No. We show what the agreement’s own formulas produce where it gives the figures, and what happens under a capital call or distribution you choose. Valuation and tax are questions for an accountant.
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Check your operating agreement agreement before you sign
Upload it, choose your options and get the report. One plan covers all eleven analyzers.
Review my operating agreementWritten and maintained by the ClauseAudit team. Last reviewed . General information, not legal advice, and not reviewed by an attorney. For a high-stakes agreement, consult a qualified attorney.
Joining, investing in or running an LLC? Upload the operating agreement with its schedule of members.
Review my agreementSeveral owners, one agreement, read from where you stand
A majority-vote amendment is control for one member and exposure for another. We run 22 checks and weight them for your position; a clause that binds everyone equally is described as mutual. We describe what the agreement does; we never tell you what your stake is worth.
Minority member
You own less than half and do not run the business day to day
- Being diluted by capital calls you cannot or will not fund
- Decisions, amendments and your own removal made by majority vote
- Fiduciary duties limited or waived, leaving little to enforce
Majority member
You own more than half, or control the vote
- Vetoes that let a minority block ordinary decisions
- Deadlock with no way out
- Tag-along and consent rights that make a sale harder
Managing member or manager
You run the business, whether or not you own most of it
- Removal without cause by a vote you cannot block
- Weak indemnification or exculpation for decisions made in good faith
- Major decisions that need approvals you cannot get quickly
Passive investor
You put money in and have no role in running the business
- Distributions entirely at the manager’s discretion, with no tax distributions
- A waterfall or promote that pays the manager before you
- Capital calls beyond what you agreed to invest
Founder with vesting
Your ownership vests over time, and you work in the business
- Losing unvested units, or vested ones, if you leave or are removed
- A bad-leaver definition broad enough to catch an ordinary departure
- Buy-back of vested units at cost or book value rather than fair value