Operating Agreements

Operating Agreements

An Operating Agreement is a contract with a very specific purpose: to lay out the goals and expected future conduct of the parties in a joint venture.

Operating Agreements are typically used for LLCs but may be used in other businesses or personal associations. Because Operating Agreements deal with predicting future events and behavior, it is important to consider many possible outcomes.

For example, in an LLC, it is frequently advisable to have provisions in the Operating Agreement for the death or incapacity of a member or manager. This can help provide for the smooth operation of the LLC even if something happens to one of the members/managers involved in the LLC. Some LLCs also arrange for life insurance policies that will purchase a member's interest upon death so the LLC can retain control of itself and not be subject to probate law or being transferred in the decedent's will.

Operating Agreements also provide organizational clarity. When the goals, rules and expectations are set down for all to see, there are far fewer surprises and all parties know what to expect. This makes for a more harmonious business relationship as well as a more efficient business environment.

Like any other corporate document, an Operating Agreement needs to be reviewed periodically to make sure that it still applies and can be adapted as the organization grows. Along with addressing concerns that the organization has, a lawyer can point out areas that may not have been considered and prepare your organization for its bright future.

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