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  • Writer's pictureNicole Bernier, Esq.

What is an Operating Agreement?

Congratulations on launching your LLC! As you embark on this exciting journey, you'll quickly discover the importance of having an Operating Agreement in place. In fact, it may even be a prerequisite for essential steps like opening a bank account and other business infrastructure tasks.

So, what exactly is an Operating Agreement? Let's break it down in simple terms: An Operating Agreement, sometimes referred to as an LLC Agreement, serves as a contract between the LLC and its owners, known as members. This document outlines crucial aspects of the LLC's structure and operations, including decision-making processes, management authority, and profit/loss distribution among members.

Once all parties sign the Operating Agreement, it becomes a legally binding contract. One of the key benefits of an Operating Agreement is that it gives its members the flexibility to include unique provisions tailored to desired business goals. For instance, if the LLC has multiple members, it can establish requirements for "supermajority" approval on certain decisions, ensuring a higher threshold for important decisions among members. Moreover, an Operating Agreement can define different rights and responsibilities for members. Some members may solely enjoy economic benefits without participating in business management decisions, while others may have the right to appoint managers, among other things.

Since Operating Agreements can accommodate many creative arrangements, they can become quite intricate. However, for solo business owners with a single-member LLC, the document can be pretty straightforward. The key is to ensure that the agreement includes the necessary language as mandated by applicable law.

If you're unsure about drafting an Operating Agreement on your own, no worries! A legal professional can easily assist you in putting together a tailored agreement that meets your LLC's specific needs.

Remember, your Operating Agreement serves as the cornerstone of your LLC's governance structure, outlining key rules and procedures. By investing time and attention into this document, you'll establish clarity and cohesion within your business operations. Feel free to contact me if you have any questions; I'd be happy to assist in crafting your Operating Agreement with confidence!

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