Importance Of Operating Agreements

As you have looked into starting your own business, you might have come across the term ‘Operating Agreement’. 

An operating agreement identifies ownership of the LLC. It states who the owners are and how much of the LLC they own, and can define how any profits and losses will be allocated amongst the owners of the business. 

An operating agreement also explains how different decisions will be made for the business, who gets a vote in the matter of changes, and how those votes are distributed amongst the owners (usually based on ownership percentages). It also sets up a process for holding meetings and how records are kept. 

Simply put, an operating agreement is a document used by LLC’s to outline the rules, regulations, and structures of the business. While your state might not require you to have an operating agreement in place, it is still a beneficial document that can help prevent disputes and clarify the roles and responsibilities of everyone involved. It can also help strengthen the business’ legal protections by distinguishing the business from its owners.