Establish Your Business with an Operating Agreement
You have finally decided to start your own business. Now, it is time to choose a business structure. Many small business owners protect themselves by forming an LLC, or limited liability company. Regardless of which structure is chosen, one key document is necessary to establish the operation's rules and regulations. It is called an operating agreement.
What is an operating agreement?
An operating agreement is a binding contract signed by the principals involved in the business. Every function of the business should be covered, including:
- A breakdown of members’ ownership interest, based on percentage.
- The powers and duties of each member.
- The voting rights and responsibilities of each member.
- The protocol for holding meetings.
- The rules and procedures for buyouts, buying and selling, transferring interest, etc.
- The distribution of profits and losses.
Why do you need an operating agreement?
This document will be referenced quite often throughout the life of a business, for any number of reasons. Here are some major examples:
Clarifying verbal agreements – An operating agreement is the key to avoiding misunderstandings and miscommunication. In the event of a conflict, it should be standard procedure to refer to the operating agreement. The wording of these agreements must be carefully considered. Smart business cannot simply be left to oral agreements.
Avoiding governance by default – States have default rules for limited liability companies without official operating agreements. By not signing an operating agreement, members of an LLC are more or less handing the running of their business over to the government.
It cannot be stressed enough that an operating agreement is a legal contract which should be discussed with an experienced business law attorney. Feel free to call this office for an appointment.
The Law Office of H. Benjamin Sharlin LLC
is owned and operated by H. Benjamin Sharlin and serves all of Mercer County, New Jersey and the surrounding areas. Mr. Sharlin is a bilingual Spanish-speaking attorney who vigorously represents the interests of all his clients.
Call (609) 585-0606 or click the button below to schedule an appointment