An Operating Agreement is a document generally created by the owners (Members) of a Limited Liability Company (LLC). The Operating Agreement states the way your LLC is going to operate and covers such things as:
- Ownership percentages
- Shares of profit/losses
- Rights of co-owners
- What happens to the company if a member leaves
An Operating Agreement will help guard your limited liability status and if it’s in writing, read, agreed upon and signed by all members of the company, many misunderstandings can be avoided.
Not all states require an Operating Agreement. However, it is always preferable to have the financial and management aspects of your business run according to the agreement created by the owners rather than run by the default rules created by your state.