Contact Us Get legal advice today.

Mon – Thurs 8:30am – 5:30pm
Friday 8:30am – 2:00pm

Why You Should Implement Operating Agreements Within Your Small Business

Are you considering going into business with family or friends? Have you already organized your LLC or are you starting from the beginning? Whether you have a partnership type of arrangement or you have multiple members in your LLC, an operating agreement may very well become your new best friend. While we'd love to believe that a verbal agreement or a "handshake" agreement will suffice, the world has changed and you may later have to prove the material terms of your agreement in court. Having a binding legal agreement in place between the members is absolutely necessary when it comes to your LLC. Even if you are a single member LLC, having an operating agreement on file can help your company maintain the corporate formalities. Furthermore, hiring a Small Business Lawyer in Raleigh, NC is recommended if you want to get your business off to the right foot. Read on to discover why you should implement operating agreements within your small business.

What is an Operating Agreement?

In general, a partnership is governed by a partnership agreement and a corporation is governed by its bylaws. An operating agreement is a legal document commonly used for LLC that expresses how your business is operated and who operates it.

Operating agreements specifically lay out the structural and management details of the LLC. For example, if there are two business owners, the operating agreement defines who owns how much of the business and the specific responsibilities of each owner. If another owner is added to the business, the operating agreement can specify how ownership interest is distributed to new owners.

If you are in the early stages of starting your business, a Small Business Lawyer in Raleigh NC, Eldreth Law Firm, can help you navigate the process, as you compose and legalize an operating agreement for your company.

The Benefits of an Operating Agreement

While most states don’t require that an LLC have an operating agreement, there are a number of reasons why business owners should consider drafting an operating agreement.

For one, while handshake agreements are still considered a legal agreement, they can often fall apart in court. Operating agreements are often used to clear up any legal misunderstandings, particularly if the situation should go to court. When a business does not have an operating agreement, a plaintiff is one step closer to being able to "pierce the corporate veil," in an attempt to overturn any liability protection and hold the individuals accountable for debts, injuries, fraud, corporate mismanagement issues, etc. An operating agreement helps establish a written legal structure that protects individuals against these liabilities.

As your business grows, your business' organizational structure can get complicated. The operating agreement will continue to provide you with clear, legal definitions of how your business operates and who should operate the business. When everyone knows their place, the business can operate seamlessly.

As all great things do, your LLC will also eventually come to an end. The terms in the operating agreement are there to protect the members and allow them to plan for a member leaving the LLC or selling their ownership interest to a third party.

What's included in an Operating Agreement?

An operating agreement usually includes terms and details regarding ownership percentages, distributions of profits and losses, powers and responsibilities for both owners and employees, requirements for meetings, rules for voting, and any conditions that would allow owners to buy out or transfer their ownership. The operating agreement will also include information such as the company name, location and purpose of the company.

Hire Eldreth Law Firm in Raleigh

If you're interested in learning more about how to write or adjust a legal operating agreement for your small business, or you need more information on how an operating agreement may better support your small business, contact Eldreth Law Firm, lawyer in Raleigh NC, today. Consulting a professional attorney about an operating agreement may be the best decision you make for your business or partnership. Don't delay.

No Comments Yet.

Leave a comment