Why you need an operating agreement.
Operating agreements allow the partners of an LLC to run their business the way they want rather than to adhere to a state’s preexisting framework for running an LLC. Operating agreements ensure that all parties understand their roles and responsibilities, know what to do in given situations, and always know how much of the business they own.
Operating agreements are also useful if there’s a dispute among the partners. They often provide a framework for how to resolve a disagreement. Whether there are disputes or not, operating agreements help businesses avoid confusion about who is responsible for what and describe what steps to take in certain situations.
If you don’t have an operating agreement for your LLC, your state’s default rules will govern the roles and responsibilities in your company. In the event of a dispute or other issue, it is those laws, rather than your own agreed-upon framework, that will govern how partners in your LLC approach their roles.
State laws and operating agreements.
When you create an operating agreement, familiarize yourself with your state’s default operating laws, how your state handles partner disputes, and any other relevant compliance issues you may face. Check with your state’s business division to see if you are meeting all legal requirements. Business divisions are usually, but not always, part of the Secretary of State’s office.
U.S. states generally don’t require you to file an operating agreement with the state, but LLCs do need documentation, either their own agreement or a state’s preexisting framework, that outlines rights and responsibilities. Every business entity, even one as small as a sole proprietorship, needs protections from risks like personal liability and a roadmap for events like buyouts.
If you are uncertain about your legal rights and responsibilities when you create an operating agreement, consult a business attorney who specializes in your local laws.