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How Important is an Operating Agreement for an LLC?

Posted by Zehra Mahid | Jul 16, 2019 | 0 Comments

What exactly is an Operating Agreement? An Operating Agreement ("OA") is an agreement between business partners about how the business will be run. There are plenty of form templates available online that can serve as a frame for your particular picture. 

So exactly how important is an OA for small business owners? Critically important. Many disputes that arise between business partners can be avoided through the utilization of a comprehensive and current OA. 

What types of clauses should a OA contain? Naturally, different businesses require different clauses; however, there are some basic provisions that you should include in yours to reduce your chances of having to deal with messy disputes. These "basics" include capital expenditures, buy-out provisions, the division of debts and profits, and the process of adding in new members. 

How often do I have to update my OA? Make sure your OA is current and correctly reflects both ownership interests and core business operations. Anytime there is a material change in your business, check your OA and update it as appropriate. A good OA can go a long way in saving time and money on disputes and legal costs.

About the Author

Zehra Mahid

I am the owner of the Mahid Law Firm, a privacy and cybersecurity law firm. I graduated from the University of Maryland School of Law in 2002. I began my legal career with the American Bar Association in Washington DC. I then went on to spend the majority of my legal career working for Humana I...

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