A Utah LLC operating agreement governs the relationship among members, the duties of managers, and how the company runs. Where the agreement is silent, Title 16 Chapter 20 fills the gap with default rules. Fourteen things the agreement may never do are fixed by statute, and knowing which are which is most of the drafting job.
Last updated: October 2026
Key Takeaways
- The controlling section is 16-20-107, which was 48-3a-112 before October 1, 2026. There is no Section 16-20-112.
- Without an operating agreement, the statute’s defaults govern your company, and they rarely match what the owners assumed.
- An operating agreement can never eliminate the duty of loyalty, the duty of care, or the obligation of good faith and fair dealing.
- It can never exonerate anyone for bad faith, willful misconduct, or recklessness.
- The agreement does not get filed with the state. It is a private document, which is exactly why it is the right place for the owners’ real deal.
What the agreement actually controls
Under Section 16-20-107(1), the operating agreement governs four things: relations among the members and between members and the company, the rights and duties of anyone acting as manager, the company’s activities and how they are conducted, and the means of amending the agreement itself.
Subsection (2) is the one that should motivate you to have one. To the extent the agreement does not provide for a matter, the chapter governs it. Every gap you leave is filled by a default rule written for the general case.
The fourteen things it may never do
Section 16-20-107(3) sets hard limits. An operating agreement may not:
- Vary the company’s capacity to sue and be sued in its own name.
- Vary the governing law provision at Section 16-20-105.
- Vary requirements about registered agents, or about records delivered to the Division of Corporations for filing.
- Vary the provisions of Section 16-1a-209.
- Eliminate the duty of loyalty or the duty of care, subject to the specific alternatives in subsection (4).
- Eliminate the contractual obligation of good faith and fair dealing, although it may prescribe standards for measuring performance of that obligation, so long as they are not unconscionable or against public policy.
- Relieve or exonerate a person from liability for bad faith, willful misconduct, or recklessness.
- Unreasonably restrict member information rights under Section 16-20-410, although reasonable restrictions on availability and use are permitted, including liquidated damages for breach of them.
- Vary the dissolution causes in Sections 16-20-701(4)(a) and (5).
- Vary the winding up requirements in Sections 16-20-703(1), (2)(a), and (5).
- Unreasonably restrict a member’s right to bring an action under Part 8.
- Vary Section 16-20-805 on special litigation committees, although it may provide that the company will not have one.
- Vary a member’s right to approve a merger, interest exchange, conversion, or domestication.
- Restrict the rights of non-members and non-managers, except as Sections 16-20-108 and 16-20-109(2) allow.
An operating agreement may not relieve or exonerate a person from liability for conduct involving bad faith, willful misconduct, or recklessness.
What this means in practice: broad exculpation clauses copied from other states will not do what they appear to do in Utah. A clause purporting to release managers from all liability is unenforceable to the extent it reaches bad faith or recklessness.
What belongs in the document
| Section | What it settles | What happens if omitted |
|---|---|---|
| Ownership and capital | Who owns what percentage and what each contributed. | Disputes over whether sweat equity counts. |
| Management structure | Member managed or manager managed, and who decides what. | Statutory defaults apply under Section 16-20-407. |
| Voting thresholds | What needs unanimity, a majority, or nothing. | Deadlock in a 50/50 company. |
| Distributions | When and how profits are paid out. | Members expecting distributions that never come. |
| Transfer restrictions | Whether an owner can sell to an outsider. | A stranger as your business partner. |
| Buy-sell provisions | What happens on death, disability, divorce, or departure. | The most expensive omission there is. |
| Valuation method | How a departing owner’s interest gets priced. | A valuation fight on top of a departure fight. |
| Deadlock resolution | A tiebreaker mechanism. | Judicial dissolution under Section 16-20-701. |
| Dissolution | How the company ends and who winds it up. | Statutory winding up rules apply. |
| Amendment | What vote changes the agreement. | Uncertainty about whether an amendment is valid. |
The buy-sell section is the one that earns the fee. Death, disability, divorce, and departure all happen, and a company without agreed terms for them resolves those events through litigation instead.
The dissolution and buyout backstop
Worth knowing what happens when there is no agreed exit. Under Section 16-20-701, a member can petition for judicial dissolution on grounds including that the managers or controlling members have acted illegally or fraudulently, or in a manner that is oppressive, and that it is not reasonably practicable to carry on the business.
Under Section 16-20-702, the company or the other members may elect to purchase the petitioning member’s interest at fair market value instead of dissolving. That election is a real remedy, but it arrives through a court proceeding, which is precisely the cost a buy-sell provision avoids.
Information rights are also protected. Section 16-20-107(3)(h) prevents the agreement from unreasonably restricting a member’s rights under Section 16-20-410, which is what a frozen out minority owner relies on. See whether a business partner can push you out.
Single member companies
The agreement matters less, but it is not pointless. It documents the separation between you and the company, which supports the liability position under Section 16-20-304. Banks and title companies routinely ask for it. And it becomes essential the moment you add a member or sell.
Note that Section 16-20-304(2) already provides that failing to observe formalities is not a ground for imposing liability on a member, so the operating agreement is not load bearing for the shield in the way popular advice suggests. It is still worth having.
Check yours for these five things
- Old citations. Search for “48-3a”. Those sections were renumbered on October 1, 2026, and the operating agreement provision is now 16-20-107. See what changed in the renumbering.
- An exit provision. If there is none, that is the finding, and it is the most important one.
- Overbroad exculpation. Clauses releasing managers from all liability are unenforceable as to bad faith, willful misconduct, and recklessness.
- Information rights. Restrictions must be reasonable, not absolute.
- A successor provision clause. One sentence saying statutory references include successor provisions makes the document survive the next reorganization.
For the wider context, see when a small Utah business needs a lawyer and LLC versus corporation in Utah.
Frequently Asked Questions
Is an operating agreement required in Utah?
The statute does not require you to have one, and a company without one is still validly formed. What it does mean is that the default rules in Title 16 Chapter 20 govern every question the agreement would otherwise have answered.
Which Utah Code section governs operating agreements?
Section 16-20-107, effective October 1, 2026. It was Section 48-3a-112 before the renumbering. Section 16-20-112 does not exist, which catches people searching for the old suffix.
Do I file my operating agreement with the state?
No. It is a private document among the members. Only the certificate of organization is filed, and its required contents are set out in Section 16-20-201.
Can an operating agreement remove a manager’s fiduciary duties?
Not entirely. Section 16-20-107(3) prohibits eliminating the duty of loyalty or the duty of care and prohibits eliminating the obligation of good faith and fair dealing, although the agreement may set non-unconscionable standards for measuring that obligation.
What happens if members deadlock and there is no tiebreaker?
The path is judicial. Section 16-20-701 allows a member to petition for dissolution on statutory grounds, and Section 16-20-702 lets the company or other members elect to purchase the petitioner’s interest at fair market value instead.
Do I need an operating agreement for a single member LLC?
It is optional and still worth having. It documents the separation between you and the company, banks and title companies often ask for it, and it becomes necessary the moment a second owner arrives.
My agreement cites Title 48. Is it still valid?
Yes. The renumbering moved the statute and did not invalidate anything. The citations are simply out of date, and the practical fix is a successor provision clause at the next amendment.
Can we amend the operating agreement later?
Yes, according to whatever method the agreement itself sets out, which Section 16-20-107(1)(d) confirms the agreement governs. If it is silent on amendment, the statutory default applies.
If your company has more than one owner and no written exit terms, that is the gap worth closing before anything happens rather than after.
Contact Jeremy Eveland or call (801) 613-1472. Offices in West Jordan and Lindon, serving Salt Lake County and Utah County.
This article is general information, not legal advice. Reading it does not create an attorney-client relationship. Statutes change, and the citations here reflect Utah law as of October 2026.