If you`re starting a company, one of the most important things you`ll need is an operating agreement. This legal document outlines the rules and procedures for running your business, and it`s crucial for protecting your company and its members. In this article, we`ll discuss the basics of operating agreements and why they`re important.
What is an Operating Agreement?
An operating agreement is a legal document that outlines the rules and regulations for your company`s operation, including the roles and responsibilities of each member. The operating agreement typically includes information on how the company will be managed, the distribution of profits and losses, and the process for adding or removing members.
Why Do I Need an Operating Agreement?
An operating agreement is critical for any company with multiple members, as it helps establish clear guidelines for how the company will run and how disputes will be resolved. Without an operating agreement, your company will be subject to default rules set by your state, which may not align with your business goals or preferences.
Additionally, having an operating agreement can help protect your company`s limited liability status. Without an operating agreement in place, your company may be at risk of “piercing the corporate veil,” which could mean that members` personal assets are at risk in the event of a lawsuit or other legal action.
What Should Be Included in an Operating Agreement?
While the specific details of an operating agreement will vary depending on your company`s structure and goals, the following elements are typically included:
– Company Purpose: A brief statement outlining the company`s mission and goals.
– Members: Information on who the members of the company are, including their roles and responsibilities.
– Management: Details on how the company will be managed, including who will have decision-making authority and how voting will work.
– Capital Contributions: Information on how much each member is contributing to the company and how profits and losses will be distributed.
– Transfer of Membership: Guidelines for how members can transfer their ownership in the company.
– Dissolution: Information on what will happen if the company is dissolved and how assets will be distributed.
How Do I Create an Operating Agreement?
Creating an operating agreement can be a complex process, so it`s recommended that you work with an attorney to ensure that the document is legally sound. However, there are also online legal services that can help you create an operating agreement at a lower cost.
In conclusion, if you`re starting a company with multiple members, an operating agreement is a crucial document that can help protect your company and ensure that everyone is on the same page. Include all the necessary elements, and work with an attorney or online legal service to ensure that your operating agreement is legally sound.