Benefits of Having an Operating Agreement

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What happens when the owners of a business disagree on what’s best for the future of their business? Without any other owners of the business, where would they go to settle their dispute? This is a common occurrence in the world of business, and often the more prepared and intelligent business owners will draft an operating agreement with the help of a business attorney before starting a business with other parties.

What is an operating agreement?

Think of an operating agreement as to the constitution of your business. In times of doubt, one should be able to look towards their operating agreement and find how it’s terms rule on the particular situation you’re unsure of.  The operating agreement is a set of rules that the owners of a business agree on before actually forming the business. Usually, owners have an experienced business attorney review or write the operating agreement. In it, the owners can include specific terms concerning their business and even what to do if the owners of a business have a disagreement. The operating agreement can also outline what interest each owner has in the business and what steps to take if any owner is willing to sell their stake in the business or unwilling to maintain their stake.

Why should you have an operating agreement?

Without an operating agreement, many owners have a difficult time trying to solve their disputes. Many times, without a legally binding document dictating how they should solve their arguments, many businesses dissolve or lose owners over a disagreement. An operating agreement will often present owners with an agreed-upon set of rules from which they can solve their dispute. Even when there isn’t a specific rule concerning their dispute many operating agreements will outline methods that the owners can follow in order to resolve their disagreement, ranging from a majority vote to legal mediation. To make sure that an operating agreement provides a comprehensive set of rules, many business owners usually seek the legal counsel of a business attorney to assist them in writing their agreements or at the very least review them.

Owning a business can be an incredibly demanding endeavor no matter how many parties share the burden of ownership. It is often highly advised that when you find yourself in business with others that you and any other owners take the time to draft an operating agreement in order to avoid any unnecessary fallout from any potential disagreements. Drafting a valid operating agreement, however, can be a complicated and daunting task which is why counsel from an experienced business attorney.

An operating agreement can also let owners have a greater amount of control over the various aspects of their business. If an owner wished to customize their business, they could include their modifications in their operating agreements, making their changes part of the business’s core set of rules. If an owner wished to alter specifics concerning member roles, employee responsibilities, or even how they wished to be taxed, they could do so in their operating agreement.  Under an operating agreement, a company with the legal structure of an LLC can choose to be taxed as a partnership if the other members agree. If you do not know what an LLC is, press here to learn more. Operating agreements grant owners greater flexibility in how they wish to manage their business both financially and legally.

Legally speaking, an operating agreement can better protect LLC owners from having to assume direct liability. Operating agreements provide LLCs with much more legitimacy and respect in courts, thus better protecting the status of the LLC and the personal assets of the LLCs owners. Without an operating agreement, some LLC may face a greater chance of having their liability shield jeopardized and thus endangering the personal assets of their owners. It is, of course, recommended to have a business attorney at least review the operating agreement you wish to implement for your business.

What happens if you don’t have an Operating Agreement?

In the state of Florida if an LLC fails to create an operating agreement then their company will be governed by the state’s default provisions. This means that the company must abide by the default rules established by the state. This means that without an operating agreement, owners of an LLC will have to limit their vision and ambitions in accordance with the default rules established by the state. With an operating agreement, owners of an LLC can override the rules provided by the state and properly change and manage their business according to their vision. The operating a

Without an operating agreement business owners could very well lose the flexibility needed in order to succeed in today’s competitive economy. Thus, it is highly advised that business owners seek out the help of an experienced business attorney to assist them in forming an operating agreement that would appropriately fulfill the goals they had in mind for their business.

PereGonza The Attorneys can offer you guidance on what may be best for your business. Whether it’s writing an operating agreement or deciding which legal structure is best for your business, one of our experienced business attorneys can offer you assistance. Fill out our personal intake form for more information.

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