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What can an operating agreement do for your business?

On Behalf of | Nov 20, 2023 | Business & Commercial Law

Any business in Lafayette can benefit from an operating agreement. Limited liability companies (LLCs), in particular, enjoy advantages with these agreements. Every business owner should understand the basics of these documents.

What is an operating agreement?

Operating agreements detail financial and functional decisions that a business must make. These documents describe the business’ governance according to specific company needs. An operating agreement serves as a contract once signed.

Why draft an operating agreement?

An operating agreement protects your organization’s LLC status. If your business has no agreements of this type, you and other owners might assume personal identity when something goes wrong.

Having a written agreement clarifies verbal agreements. Putting this information into an operating agreement reduces the chances of misunderstandings, which can take a lot of your time and money.

In most states, you need an operating agreement for state recognition. Without one of these contracts, state regulations, rather than company rules, apply to your operations.

What should go in the operating agreement?

Most operating agreements are 5-20 pages long and written as business law contracts. Some of the details included might be:

  • Buyout/buy-sell rules
  • Meeting guideines
  • Profit and loss distribution
  • Duties and powers of members/managers
  • Voting rights
  • Member ownership percentages

How should you file an operating agreement?

Operating agreements should be with your business records, and each member or manager should have a copy for their records. States do not accept copies for safekeeping, and these documents are not filed.

An operating agreement is essential in ensuring that your company has the maximum protection. These documents outline rights and responsibilities and provide important recognition.