Forming a Maryland LLC through SDAT takes about as long as ordering lunch online. A few clicks, a filing fee, and the state sends back your Articles of Organization. That simplicity is genuinely useful, but it creates a false sense of completion. Maryland doesn’t require a written operating agreement, and many owners interpret that permissiveness as permission to skip the document entirely. It isn’t. The statute’s flexibility only works in your favor when you actually use it. Skipping the agreement means Maryland’s generic default rules govern your business instead of terms you chose.
We’ve spent more than 90 years helping Maryland business owners work through the gaps that surface after formation: the partner dispute with no resolution mechanism, the bank that wants documentation nobody prepared, the succession question that outlives the person who assumed it was settled. The mistakes below are the ones that come up most often, and they’re avoidable once you understand what Maryland’s default rules actually say.
Assuming Maryland’s Silence Means the Agreement Is Optional
Under Md. Code, Corps. & Ass’ns § 4A-402(b)(2), an operating agreement doesn’t have to be written unless the Articles of Organization specifically require it. That provision leads a lot of owners to treat the whole document as a formality they can skip. What they’re actually skipping is the chance to define how their business runs on their own terms.
Without an agreement in place, Title 4A’s default rules govern ownership, voting, and profit allocation regardless of what the members intended when they started the company. Those defaults aren’t designed around your business. They’re designed around the generic Maryland LLC, which may look nothing like yours. Maryland law also expressly validates operating agreements for single-member LLCs under § 4A-402, so sole owners face the same exposure as multi-member companies if they decide the document doesn’t apply to them.
Not Knowing What Maryland’s Default Voting Rules Actually Require
Most members assume that voting works the way they’d expect: one person, one vote, majority wins. Maryland’s default rules work differently. Under § 4A-403(b), members vote in proportion to their profit interests, and ordinary business decisions require a majority of profit interests, not a majority of members. A member holding 51 percent of profits controls most day-to-day decisions even if every other member disagrees.
Major decisions require more. Disposing of substantially all company assets, approving a merger, or converting to another entity type all require consent from members holding at least two-thirds of profit interests under § 4A-403(d). Two members with equal profit interests can deadlock those decisions entirely. Neither side reaches two-thirds, and Maryland’s default rules provide no tiebreaker. The operating agreement is where you create one.
Common approaches include:
- Mediation before litigation: Requiring a neutral third party to facilitate resolution before any member can pursue a court remedy
- Manager override: Designating a manager-managed structure with a named tiebreaker for specified decision categories
- Buy-sell triggers: Allowing either member in a deadlock to initiate a buyout at a predetermined valuation method
Leaving Succession & Death-Transfer Provisions Unresolved
This is the mistake with the most consequential recent legal history in Maryland, and it arose from a circuit court case right here in Anne Arundel County.
In 2021, the Maryland Court of Special Appeals decided Potter v. Potter, 250 Md. App. 569, holding that an operating agreement’s provision purporting to transfer a deceased member’s interest was unenforceable. The court found that the transfer functioned as a testamentary disposition and didn’t meet the formal execution requirements of Maryland’s Statute of Wills. In plain terms: a succession clause in an operating agreement wasn’t enough to actually transfer the interest at death if it wasn’t drafted and signed with the same formality as a will.
The Maryland General Assembly reversed that outcome through legislation effective October 1, 2022, clarifying that transfers on death under an operating agreement are effective according to the agreement’s own terms and aren’t treated as testamentary dispositions. That’s the right result, but it only protects you going forward if your agreement reflects the current rule. Succession language drafted before October 2022, or pulled from an older template, should be reviewed to confirm it doesn’t carry the assumptions that Potter exposed.
Overlooking the Six-Month Default Exit Window
Under § 4A-605, a member may withdraw from a Maryland LLC by giving at least six months’ prior written notice to the other members unless the operating agreement says otherwise. Most members have no idea that window exists until someone invokes it. The agreement can shorten that notice period, extend it, or eliminate the withdrawal right entirely for a defined period. None of those options apply unless the members actually address the question in the document.
Without a buyout mechanism written into the agreement, an exiting member’s departure leaves valuation and ownership questions open for months. Who determines what the departing member’s interest is worth? At what date? Using what methodology? These aren’t abstract questions once someone actually wants out, and they’re far cheaper to answer in advance than in litigation.
Relying on a Generic Template Instead of Maryland-Specific Terms
Generic operating agreement templates circulate freely online, and some are well-drafted for the state they were written for. Maryland usually isn’t that state. A template built around Delaware’s LLC statute or a uniform model act creates direct conflicts when applied to a Maryland LLC governed by Title 4A of the Corporations and Associations Article.
The provisions that matter most are the ones Maryland’s defaults handle differently: voting thresholds tied to profit interest rather than membership headcount, the six-month withdrawal notice, and the corrected death-transfer rule post-2022. A generic template typically doesn’t address any of these accurately. It also tends to leave the provisions that matter most to your actual business, including ownership percentages, capital contribution obligations, management structure, and buyout terms, filled with placeholders that members never get around to completing. An agreement that doesn’t reflect your members’ actual arrangement doesn’t protect it.
Getting the Agreement Right
The five mistakes above share a common thread: they all result from treating the operating agreement as a formality rather than the document that actually defines how the business runs and what happens when things change. Maryland’s LLC statute gives members the latitude to modify nearly every default rule, including voting thresholds, withdrawal rights, management authority, and succession terms, as long as the agreement addresses those issues directly. That protection only exists if someone writes them in.
If your LLC was formed without a written agreement, or with a template you’ve never reviewed against Maryland’s actual statute, Hartman - Attorneys at Law offers complimentary consultations to help you assess the gaps and draft or revise an agreement before a gap becomes a dispute. You can reach us at (443) 335-9661.