Operating agreements are crucial for forming and protecting an LLC. They serve to outline the financial and functional decisions while also offering protection from legal action taken against the business entity or any of its members. There are many different rules, regulations, and provisions to consider when opening your business. The operating agreement is specific to each entity it outlines and works to aid the needs of the business owners. Although operating agreements before January 1^st, 2023 will need to be in writing, after this date new legislation indicates that an operating agreement may be administered orally, in writing, in a record, or in any combination thereof and still be legally binding.

Although oral agreements are becoming legally enforceable soon, misunderstandings or ambiguity may jeopardize the integrity of the business. Operational conditions and business arrangements handled in writing can best be referred to in the event of a disagreement. When a business does not have an operating agreement, the default rules of the state are applied in the court of law. 

There is a general set of principles set forth in the agreement, just like any legally binding contract. The operating agreement establishes structure, distributive shares, allocation of profits and losses, voting rights, and what to do in case of dissolution or if there needs to be a transition in ownership. Distributive shares refer to the sharing of profits and losses. Pursuant to the agreement, this is often done by the percentage of ownership, which can center on the initial capital invested.  Dissolution or transfer in ownership should be clearly articulated in the agreement as to keep the process as civil as possible. 

Creating an operating agreement is crucial to avoiding or mitigating disputes among the members of a company. Mistakes may happen or relationships may weaken during the course of the business, but having an airtight operating agreement will help to outline what practices should be followed. Contact an attorney to help guide you through the process of starting up a business to ensure protection from possible legal action. The attorneys at OVB Law & Consulting, S.C. are specialized in business law and will help guide you through the drafting process to ensure that your company has an operating agreement that achieves the goals of its members.