An operating agreement is a legal document that defines and outlines the rules, regulations, managerial functions, financial rights, and decision-making among the members of limited liability company or known as LLC. Unlike hold harmless agreement that focuses on releasing legal claims as well as promising not to sue the other party for any damages, an operating agreement makes sure that a there is flexibility in terms of defining each members’ rights and responsibilities.
This type of document will become a legally binding document if the members of the LLC signed the said operating agreement and would, therefore, become similar to a non-disclosure agreement where it has its own outlining of terms, confidential materials, and knowledge yet not really similar to an operating agreement’s nature.
Corporation Operating Agreement
Operating Agreement Format
Sections of Operating Agreement
Below is a list of the different sections included in an operating agreement and is more likely similar with the content of an agreement letter template.
- Equity Structure – defines the membership interests, classes of membership interests, contributions and capital accounts, and allocation of profits, losses, and distributions.
- Management – include the names of the members of LLC who are going to manage the operations.
- Voting – a clause stating that there is a possibility of altering the rules with regards to the percentage interests to the proportionate voting of members.
- Limitation on Liability and Indemnification – defines the duties of managers regarding the legal developments.
- Records – record-keeping and the rights for inspection.
- Restrictions on Transfer – states the assignment of interests, approval rights, rights of first refusal, permitted transfers, buyout, and tag-along rights.
- Liquidations – distinguishes the person who dissolved the LLC.
- Provisions – includes provisions with regards to the disputes that should be settled down by means of a non-binding mediation and should be followed by an arbitration agreement, which would need an arbitration agreement template in doing so.
A basic agreement template mostly highlights the contents of what a basic template must include, thus helping an individual like you to be convenient in writing. For other reference, an investment agreement template might be very helpful for you in the future.
Operating Partnership Agreement
Sample Operating Agreement
Guidelines in Writing an Operating Agreement
Resorting to a printable agreement template will make your work better and easier. Below is a list of the things you need to do in the process of creating an operating agreement:
- Gather data. Meet your coworkers and discuss what are the best things to do in drafting your operating agreement. The involvement of LLC owners is a must too.
- Format your document. You need to choose the best font style, size, and a word processor that works best for you.
- Start stating that you are drafting an operating agreement, including the names of the members who agreed in the said document. Then go ahead and start distinguishing your business name and its location, what is your business all about, are you selling products or goods, is it services that you are offering. If your business is inclined with services, you might also need a service operating agreement, which is very timely and specific for the said type of business.
- Explain the purpose of the company and how long will the agreement be taking its existence.
- Start filling out the different important sections that has been discussed previously.
- Let the LLC members sign the agreement.