No Operating Agreement? Big Problem!


Once you have decided to set up your LLC, it is advisable to create an operating agreement. While an operating agreement is not necessarily required to finalize the setup of your business, you could find yourself with a lot of unnecessary legal issues if circumstances in your LLC change (e.g., a member dies or gets divorced).




What is an Operating Agreement?

An operating agreement is a legal document that outlines the duties and responsibilities of the members and management of your LLC. The purpose of such an agreement is to govern the operations of your business and help business owners plan for the future. Once signed, it acts as an official contract binding the members to its terms.



What happens when you enter into business with someone and you don’t have an Operating Agreement?

Business relationships are very similar to personal relationships in that they can change unexpectedly. An LLC without an operating agreement is like a marriage without a will – Who gets the house? Where do the assets go? Who will take care of the children? A good operating agreement is designed to address these types of issues at the time of formation and allows the members to decide what happens to the company, its management and its assets in the event of a change in circumstances. In the absence of an operating agreement, members are at the mercy of the court’s interpretation of the applicable law…which may not be in line with the goals of the LLC.



Do I need an Attorney?

Having a well-drafted operating agreement is crucial should any legal dispute arise between LLC members. While there are many online options available to help you get started with creating an operating agreement, most are basic templates that do not address the specific needs of your LLC. This is why it is always important to consult with an attorney before signing ANY contract or agreement that may affect your business, income or liability. Having your operating agreement drafted or reviewed by one of our attorneys can save you time and money in the long run. Planning ahead for your LLC’s future is the best way to ensure a lasting legacy.