Alabama does not require you to file an operating agreement with the state. But if you have no written agreement, you have adopted the statutory defaults wholesale — including equal distribution sharing regardless of capital contributions, unanimity to amend anything, and no compensation for working members. For multi-member LLCs, these defaults break real companies. Even single-member LLCs need one for banks, lenders, and succession planning.
Does Alabama require an LLC operating agreement?
Alabama does not require you to file an operating agreement with the Secretary of State. The agreement is an internal document — private, not public, and never seen by the state. But "not required to file" is not the same as "doesn't matter."
The Alabama LLC Law of 2014 (Chapter 5A) operates on a two-step structure: the operating agreement governs internal matters first, and the statute fills every gap where the agreement is silent. If you have no written agreement, the statute fills everything — and the statutory defaults are not written with your company in mind.
You may already have an operating agreement you did not write. Alabama law defines "limited liability company agreement" to include oral and implied agreements. If members have operated the company a particular way or allocated money a particular way, a court may find an implied agreement on those terms. A written agreement does not merely add terms — it displaces the argument about what the unwritten terms were. Source: § 10A-5A-1.02(l), Code of Alabama 1975.
The three most dangerous default rules
Every item below applies automatically to an Alabama LLC whose operating agreement is silent on the point. They are not edge cases — they are the rules that most commonly produce disputes.
Default 1 — Distributions are shared equally, not proportionally. If two members contribute $90,000 and $10,000, and the agreement says nothing about distributions, Alabama's default is that they share equally. Per capita, not in proportion to capital. Most members assume distributions follow contributions. Alabama's statute says otherwise, and the assumption is only tested once there is money to fight over. Source: § 10A-5A-4.05(a)(1), Code of Alabama 1975.
Default 2 — Unanimity to amend, forever. Amending the operating agreement requires the consent of all members. With more than one member, any single member holds a permanent veto over changing the agreement — including changing the unanimity rule itself. A minority member can freeze the document permanently. Source: § 10A-5A-4.07(b)(3)(A), Code of Alabama 1975.
Default 3 — No compensation for working members. The statute does not entitle a member to remuneration for services performed for the LLC — except reasonable compensation for services in winding up. The member who works 60 hours a week has no statutory right to a salary; the passive member has the same claim on distributions. Source: § 10A-5A-4.07(d), Code of Alabama 1975.
What an operating agreement can and cannot do
Alabama is a strong freedom-of-contract state. Chapter 5A opens with a policy declaration that it is the policy of the chapter and the state to give maximum effect to the principles of freedom of contract. That means your operating agreement can reshape most of the statutory defaults — but not all of them.
What requires a written agreement specifically
Oral agreements cannot do the most important things. Alabama law recognizes oral and implied operating agreements for basic governance — but to modify fiduciary duties, limit liability for breach of duty or contract, or expand member powers beyond statute, a written agreement is specifically required. The most valuable things an Alabama operating agreement can do legally require writing. Sources: §§ 10A-5A-1.08(b)(1), (b)(2), (b)(6), Code of Alabama 1975.
The sixteen things an agreement cannot do
Section 1.08(c) lists sixteen provisions an operating agreement may not include. Three are worth noting before you draft:
- Cannot restrict third-party rights. An operating agreement binds members, dissociated members, and transferees — it cannot reach creditors, spouses, or others who have not agreed to be bound.
- Cannot eliminate the covenant of good faith and fair dealing. This floor exists beneath all fiduciary duty modifications. You can eliminate duties; you cannot eliminate good faith.
- Cannot contract away judicial dissolution. A court's power to order dissolution in specified circumstances cannot be removed by agreement. A deadlock or oppression case cannot be foreclosed by drafting.
Default rules — what applies if your agreement is silent
Read this section even if you read nothing else. These rules govern automatically.
Governance defaults
| Question | Default rule if silent | Citation |
|---|---|---|
| Who runs the company? | Member-managed. Activities are under the direction and oversight of the members. | § 10A-5A-4.07(b)(1)(A) |
| How are ordinary decisions made? | Majority of the members — per capita, not by ownership percentage. | § 10A-5A-4.07(b)(2)(A) |
| What requires unanimity? | Amending the agreement, filing for bankruptcy, acts outside ordinary course, and other all-member-consent matters. | § 10A-5A-4.07(b)(3)(A) |
| Are meetings required? | No. Decisions may be made without a meeting. Members may appoint a proxy. | § 10A-5A-4.07(c) |
| Do working members get paid? | No statutory entitlement to remuneration, except for services in winding up. | § 10A-5A-4.07(d) |
Money defaults
| Question | Default rule if silent | Citation |
|---|---|---|
| How are distributions shared? | Equally — per capita, not in proportion to capital contributions. | § 10A-5A-4.05(a)(1) |
| Does leaving entitle a member to a payout? | No. Dissociation does not entitle the departing member to a distribution. | § 10A-5A-4.05(a)(2) |
| Can a member demand property instead of cash? | No. Distributions must be in money only, unless members receive a proportionate share of an asset. | § 10A-5A-4.05(a)(3) |
| Who owns company property? | No member has any interest in specific company property. | § 10A-5A-4.02 |
Transfer defaults
| Question | Default rule if silent |
|---|---|
| Can a member transfer their interest? | Yes — but only the right to receive distributions transfers. Voting rights and management do not. |
| Does a transfer admit the transferee as a member? | No. A transferee gets distributions only — no vote, no access to records, no management role. |
| Do other members get a right of first refusal? | No such right exists under the statute. Your agreement must create it. |
| Is there a buy-sell mechanism on death or departure? | No. There is no statutory valuation or purchase mechanism. Your agreement must create one. |
The transfer default already does half the work. Alabama's transfer default is protective by design: a buyer or creditor who acquires a member's interest gets the money and nothing else — no vote, no books, no information rights. What the default does not do is prevent the transfer from happening or give other members a chance to buy first. Those protections your agreement has to add.
Records every Alabama LLC must keep
Section 4.09 requires every Alabama LLC — including single-member LLCs — to maintain five categories of records. This is not optional and applies regardless of whether you have a written operating agreement.
- A current list of each member's full name and last known street address
- A copy of the Certificate of Formation and all amendments
- Federal, state, and local income tax returns for the three most recent years
- Copies of the then-effective operating agreement, including amendments
- Financial statements for the three most recent years
Source: § 10A-5A-4.09(a), Code of Alabama 1975.
Personal liability for refusing a records inspection. A person with authority who, without reasonable cause, refuses a member's proper written records request is personally liable — not just the company — for up to 10% of the fair market value of that member's transferable interest, plus other damages. If you manage an LLC with outside members and receive a written records demand, route it to counsel immediately. Source: § 10A-5A-4.09(b), Code of Alabama 1975.
What every Alabama operating agreement should cover
The checklist below is organized by the statutory default each item displaces. These are questions to answer with an attorney, not clauses to copy from a template.
Money & distributions
Governance
Exit, transfer & succession
Duties, liability & process
Single-member LLC operating agreements
A single-member LLC has no one to negotiate with — which is why the agreement is most commonly skipped, and why the reasons for having one are different in kind from the multi-member case.
| Reason | Why it matters for a solo LLC |
|---|---|
| The statute expressly validates it | Alabama law states explicitly that a single-member agreement is not unenforceable by reason of there being only one party to it. The legislature anticipated the objection and removed it. |
| Banks and lenders ask for it | There is no state-filed substitute. When opening a business bank account or applying for credit, the operating agreement is the document institutions request. |
| It evidences separateness | The LLC exists to be separate from you. A written agreement documents that you treated it that way — recording contributions, governance, and the boundary between company and personal affairs. |
| It handles succession | With one member, no one else is positioned to answer what happens to the company on your death or incapacity. The operating agreement is where you address this. |
| Statutory record-keeping requires it | Section 4.09(a)(4) requires every LLC to maintain copies of the then-effective operating agreement. A company with no agreement is technically out of compliance with its own record-keeping obligation. |
| It preserves optionality | If you later bring in a partner or sell an interest, an existing agreement is the starting point. Drafting one mid-negotiation is harder and more expensive. |
Common mistakes
| Mistake | Why it matters |
|---|---|
| No written agreement at all | You have not avoided an agreement — you have adopted every statutory default, and possibly an oral or implied agreement you did not intend. |
| Using a generic multi-state template | Chapter 5A has Alabama-specific mechanics — the sixteen prohibitions, the written-agreement requirement for duty modification, the equal-sharing distribution default. A template for another state will not track them. |
| Assuming distributions follow contributions | The default is equal sharing per capita, not proportional to capital. This is the single most dangerous default for multi-member LLCs. |
| Leaving the amendment procedure to the default | Unanimity to amend gives every member a permanent veto over the document itself. |
| Trying to modify fiduciary duties orally | Those provisions require a written agreement. An oral understanding has no legal effect on fiduciary duties. |
| Ignoring a member's written records demand | The refusing individual can be personally liable for up to 10% of the requesting member's transferable interest, plus other damages. |
| Signing it and never looking at it again | The agreement includes its amendments. A document that no longer reflects how the company operates invites an argument that the real agreement is the unwritten one. |