Legal

Why Partnerships Should Have an Operating Agreement;Legal Reasons #65

Operating Agreements are necessary for businesses partnerships as they establish the management and operations of the partnership. This is a necessary legal document for your business to get future protection if the partnership breaks down for some reason.

An Operating Agreement is different from Bylaws  which are necessary for Corporations  that set out the basic rules for operating one’s corporation.

Bylaws are not filed with the state and your corporation is not legally required to have corporate Bylaws, but you should have Bylaws because it establish your corporation’s operating rules, and help show banks, creditors, IRS, and others that your corporation is legitimate.

An Operating Agreement defines each member’s rights, powers, and entitlements. Operating Agreement includes capital accounts, membership interest, distributions of profit and allocated tax responsibility, etc.

This internal document is an agreement set by the members that contains provisions for important items and rules that run the company. Operating agreements can be changed at any time by the company members or managers.

While you can find templates of Operating Agreements online, these templates do not reflect any specific agreements that you have with your partners and may often be missing sections that will act as great protection for you long-term.

Most template Operating Agreements are really not comprehensive. If you have partners, you want something that is customized to your business and your needs because this document can be very crucial in case one of the partners wants to sell his or her shares or dies. This document will also come in handy if you have disputes with your partners.

If you’re starting a business, my office drafts Operating Agreements and makes sure that they are customized to exactly what you need and I also ensure that you understand this agreement.

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