What is an Operating Agreement?


One of the most important steps that a Silicon Valley start-up company can take to ensure smooth and profitable business operations is the execution of an operating agreement. An operating agreement can help Limited Liability Companies (“LLCs”) to avoid otherwise simple mistakes that could take time, energy, and capital away from the business. Having this document in place at the outset of business operations can help to avoid a host of issues down the road. The experienced Silicon Valley corporate attorneys at Startup Company Counsel can help you to create an operating agreement that most effectively meets your business needs.

Common Goals of an Operating Agreement

An operating agreement is simply a legal document that outlines the LLC’s structure and organization, as well as the rights and responsibilities of the LLC members and managers. The operating agreement is essentially the equivalent to the bylaws of a corporation, but with a different name, and one of its main goals is to provide a written framework for how to tackle business issues that could come up at any time. For example, in the event that additional individuals want to buy-in to the LLC, the operating agreement will outline that process so that there is minimal confusion in completing such a transaction.

The operating agreement will contain provisions for important aspects of business operations, such as the formation details, capitalization structure and organization, the list of all members and managers and their ownership percentages, and what happens in case a member commits fraud upon the business. In addition to structure and ownership percentages, voting and management are important issues to address in an operating agreement. Votes can be allotted equally among members, according to ownership interest by unit, or in any other proportion that the members agree upon. Likewise, the operating agreement can lay out the management of the LLC, which can be member-managed or manager-managed. Simply put, the operating agreement (just like the bylaws) is the “constitution” of the business.

Other items to consider putting in the operating agreement include capital contributions and financing procedures, distributions, changes in membership, and dissolution of the company. All of these events can be executed more efficiently and with less conflict when there are already procedures set forth in the operating agreement that address them.

What Are the Goals of Your Business?

When drafting an operating agreement, it is important to carefully consider the specific goals and needs of your business. This will determine the best methods of operation to efficiently meet those goals. A clear statement of operations can also reduce future confusion and conflict among LLC members.

Experienced Corporate Attorneys to Help You Form Efficient Operations

At Startup Company Counsel, our experienced corporate attorneys can help you to build a successful business from the ground up. Schedule a consultation today by calling (855) 353-5377, emailing admin@startupcompanycounsel.com, or submitting a request through our online contact form. We help new business owners form businesses, develop operations that maximize profits, and ensure smooth relationships within the business.

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