What Is A Business Operating Agreement?

As the owner of a brand new business, you have a lot of decisions to make. First and foremost, you'll have to determine what type of business entity you would like to use. Depending on your chosen structure (an LLC, for example), you may want to establish a business operating agreement. Even though you are not legally required to have an operating agreement, taking the time to set one up may prove incredibly valuable in the long run. O'Donnell Law Center is here to help!

Business Operating Agreements

As its name suggests, a business operating agreement is a simple but comprehensive document that outlines how a new business will handle certain situations. Sometimes known as LLC Agreements or Limited Liability Company Operating Agreements, these documents outline some of the procedures for your company, especially if things don't go as planned.

Recommended Components Of An Operating Agreement

As with most standard business documents, almost all successful operating agreements contain several key components. Here are a few examples of elements we recommend including:

The Purpose The Business
Now is your opportunity to state, in a clear and concise manner, exactly what type of business you are starting and what its purpose is. You can be very generic, or as specific as you would like to be.

Members Of The LLC
Members of an LLC are different than the people the company employs, as they often have some amount of financial stake in the company. This section of your agreement should list who the members are, and how much they each invest in the company to help get it off the ground. You will also need to identify how each member will be compensated (see the next section).

Profits, Losses, And Distributions
What do you want to do with company profits from the first few years? Some business owners choose to reinvest them, and then give members an opportunity to reclaim their initial investments in the following years. It should come as no surprise that financial disagreements are often some of the most debilitating ones co-managers face, so having an agreement in place ahead of time about sharing and/or re-investing profits can help prevent difficult issues down the road.

O'Donnell Law Center Can Help You With Your Operating Agreement

Setting up an operating agreement requires putting in a little extra time in the beginning, but it will be a valuable investment in your company. By devising strategies ahead of time, you will have a guiding document you can refer to when issues arise. Your Lake of the Ozarks business attorney will be able to help you draft this document, ensuring that you include all of the necessary components. If you have questions about the process, don't hesitate to contact O'Donnell Law Center!

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Osage Beach, MO  65065


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