Your LLC's Operating Agreement Hasn't Been Updated in 3 Years. That's a Problem.

When a business partner leaves, when you bring on investors, when someone dies, these moments reveal whether your LLC operating agreement actually works. If you formed your company three or more years ago and haven't touched your agreement since then, therecould be a good chance that it doesn't address your current situation.

Business evolves. Members come and go. Operations expand. Financing changes. Your operating agreement  should be able to evolve with these changes. If not, you risk finding yourself operating under Washington's default statutory rules, and these rules might not match your business vision. This article walks you through the specific triggers that require operating agreement updates, what happens when outdated agreements clash with business reality, and how to determine whether your agreement still protects you.

What Triggers an LLC Operating Agreement Update?

Under Washington law (RCW 25.15), your LLC operating agreement can be written, oral, or implied. The problem is that agreements written years ago often don't address current business realities, and when your agreement is silent on a topic then Washington's statutory default rules take over.

Adding or losing members creates immediate need for updates to your operating agreement. When someone joins or leaves your LLC, your agreement should address the new ownership percentages, voting rights, profit distributions, and buyout procedures. Without these provisions, the default rules in RCW 25.15 apply, and those may not align with what you and your co-owners actually want.

Member death requires specific provisions. Under RCW 25.15.131(1)(a), a person is automatically dissociated as a member upon death. For single-member LLCs, this triggers a serious problem. RCW 25.15.265(4) states that dissolution occurs ninety days after the dissociation of the last remaining member. That means forced liquidation of business assets, potentially at the worst possible time for your estate and your heirs.

Changing your business focus matters more than most owners realize. If you started as a consulting firm and now manufacture products, or began as a local retailer and now operate e-commerce across multiple states, your original agreement probably doesn't address these operational complexities. The governance structure that worked for simple operations may not work when you're dealing with inventory, equipment, employees, or multi-state compliance.

Expanding operations triggers update needs. Opening new locations, hiring employees beyond the original founders, taking on debt, or entering new markets all change your risk profile. Your agreement should address who authorizes these expansions, how new locations are managed, and what happens if an expansion fails.

New financing arrangements  would require updates. If you've taken on business loans, brought in investors, or changed how profits get distributed, your operating agreement needs to reflect these financial relationships. Lenders often require specific provisions. Investors want particular protections. Your original agreement written for two founders with no debt won't cover these situations.

What Happens When Your Agreement Doesn't Match Reality

Operating under an outdated agreement creates real business problems. Most LLC owners don't realize their agreement has gaps until they face a dispute or major decision. Then Washington's default rules fill those gaps, and the results often surprise owners.

Member withdrawal gets complicated. Under RCW 25.15.131(2), if your LLC agreement doesn't specify when or how a member may withdraw, a member cannot withdraw without the written consent of all other members. Think about that. If your agreement is silent, a member who wants out can't leave unless everyone else agrees. That's a recipe for disputes and potential litigation.

Dissociation strips management rights immediately. When a person is dissociated as a member under RCW 25.15.131(3), their right to participate in management terminates. If the LLC is member-managed, their fiduciary duties end with regard to matters arising after dissociation. But they may still have economic rights. Without clear buyout provisions in your agreement, you're left with a former member who has no voice in operations but still receives distributions.

Forced dissolution can destroy value. For single-member LLCs especially, the forced liquidation ninety days after the owner's death can devastate family wealth. Business assets sold under pressure rarely bring fair value. The forced sale happens regardless of market conditions. All of this can be prevented with proper succession planning in your operating agreement.

Default voting rules may not fit your business. If your agreement doesn't specify voting requirements, then Washington's default rule under RCW 25.15.120 applies. Understanding what your agreement says about voting, and whether that still matches your business needs, becomes critical as your LLC grows.

How to Tell If Your Agreement Needs Updating

Run through this checklist, and if you answer yes to any question, your operating agreement may need attention.

Member changes: Has anyone joined or left your LLC since formation? Has any member's ownership percentage changed? Has anyone gotten divorced, and might their spouse have claims to membership interests? Did a member pass away?

Business operations: Are you doing business in states beyond where you formed? Have you added product lines or service offerings not contemplated originally? Do you have employees now when you didn't before? Have your revenue streams changed substantially?

Financial structure: Have you taken on business debt? Changed how you distribute profits? Brought in outside investors? Changed your tax classification? Do you have credit lines or other financing that wasn't part of your original structure?

Management structure: Are the people making day-to-day decisions different from when you started? Has someone stepped back from active management while retaining ownership? Have roles and responsibilities shifted without documenting those changes?

Risk profile: Are you operating in industries or markets with different liability exposures than originally? Have you taken on activities that carry more risk? Do you need updated indemnification provisions?

If you answered yes to even one of these questions, your operating agreement likely doesn't protect you the way it should.

Common Mistakes That Create Problems Later

Assuming your old agreement still works. Most LLC owners in Washington state operate under the assumption that once they've created an operating agreement, it's good forever. That's not often how businesses work. Your operations may evolve, your members change, or your financing could get more complex. Your agreement  ought to keep pace.

Not addressing buyout terms. When a member wants out or dies, how do you value their interest? Who can buy it? What's the payment timeline? Without clear terms, you're setting up expensive valuation disputes and potential forced sales to outside parties you may not know.

Ignoring succession planning for single-member LLCs. If you're the sole owner and you die, RCW 25.15.265 forces your LLC to dissolve ninety days later unless your agreement says otherwise. That means liquidating your business assets, often quickly and at unfavorable prices. Your heirs lose enormous value, all because you didn't update your agreement.

Failing to update after bringing in investors. Investors usually want specific protections: information rights, approval rights over major decisions, anti-dilution provisions, exit rights. If you don't document these properly in your operating agreement, you'll face disputes about what was promised versus what was actually agreed to.

Using template agreements from other jurisdictions. It is wise to be careful when using template agreements from other states and cities.  Washington's LLC law has specific provisions and requirements. For example, an operating agreement drafted for Oregon or California may create conflicts with Washington law, leaving gaps that force you into statutory defaults you didn't intend.

Getting Your Agreement Updated

K&S Canon assists Seattle and King County businesses with updating their LLC operating agreements to match current business realities. Our team reviews your existing agreement, identifies gaps based on how your business has evolved, and drafts updates tailored to your needs.

Whether you're dealing with member changes, business expansion, new financing, or succession planning, we anticipate and address potential legal issues before they impact your business. Our goal is to simplify your life by ensuring your operating agreement actually protects you.

Prevention costs a fraction of what remediation does. If your LLC operating agreement is three years old or older and hasn't been updated, now is the time to review it.

Contact K&S Canon today for a consultation. We serve businesses throughout Seattle and King County, including surrounding areas like Bellevue, Redmond, Mercer Island, Issaquah, North Bend, Burien, Shoreline, Sammamish, Kent, Renton, Federal Way, and Kirkland.

Legal Disclaimer: This article provides general information about LLC operating agreement updates and should not be considered legal advice. Every case is different. Outcomes depend on specific facts and circumstances. For advice about your situation, contact a licensed attorney in your state.