By: Attorney Shira Truitt
Business operating agreements, also known as operating agreements or LLC operating agreements, are legally binding documents that outline the rules and regulations for running a business. These agreements are typically used by limited liability companies (LLCs) and outline the rights and responsibilities of the members (owners) of the company.
One of the primary purposes of a business operating agreement is to establish the management and decision-making structure of the company. This includes outlining how decisions will be made, who has the authority to make decisions, and how disputes will be resolved. The operating agreement may also include provisions for how new members can be added to the company and how existing members can be removed.
In addition to establishing the management structure, business operating agreements can also outline financial matters such as how profits and losses will be distributed among the members and how the company's assets will be divided in the event of dissolution or death of a member.
It's important to note that while business operating agreements are not required by law, they can provide important legal protections for both the company and its members. For example, an operating agreement can help protect the limited liability status of the company, which shields the members from personal liability for the company's debts and legal issues.
There are several key elements that should be included in a business operating agreement, including:
The names and addresses of the members and the company
The purpose of the company
The terms of membership, including how new members can be added and existing members can be removed
The management structure, including how decisions will be made and who has the authority to make them
Financial matters, including how profits and losses will be distributed and how assets will be divided in the event of dissolution
Provisions for handling disputes and resolving conflicts
It's important to consult with an attorney when drafting a business operating agreement to ensure that all necessary elements are included and the agreement is legally binding.
Having a business operating agreement is not mandatory in most states, but it is necessary to make decisions in a fair and impartial way that allows the business to grow. You—and your business—deserve that!
If you need legal advice or a lawyer in Illinois or Missouri, please contact The Truitt Law Firm, LLC for assistance. For more information on The Truitt Law Firm, LLC or to schedule an appointment, please go to www.thetruittlawfirm.com.