26 Nov What is an Operating Agreement and does my business need one?
According to the US Small Business Administration, an operating agreement is one of the most important documents used by a business because if structures the business’ financial and functional decision. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners. Once the document is signed by the members, it acts as an official contract binding them to its terms.
Why do you need an operating Agreement?
- To protect the business’ limited liability status
- To clarify verbal agreements
- To protect your agreement in the eyes of your state (which rules on LLCs without an official operating agreement)
What is included in an operating agreement?
- Percentage of members’ ownership in the business
- Voting rights and responsibilities of the owners
- Members and managers powers and duties within the business
- How profits and loses will be distributed
- Hold meetings – when, where and how often
- Buyout and buy-sell rules for members when they chose to sell or if they die
Sample LLC Operating Agreement Template