What is an Operating Agreement?

An LLC operating agreement is a document that outlines the businesses objectives and defines how a company will operate. It creates a clear understanding between the members of the LLC and outlines the rules for the business.

An operating agreement is required if you live in California, New York, Missouri, Maine or Delaware, but even if you do not live in these states, it is still recommended that your business have one.

There are several key components every LLC operating agreement should have (examples of some below):

• Members information

• Tax treatment preferences

• Should clearly define how profits and losses will be allocated among the members of the LLC.

• Provide a framework for how and when those profits should be distributed to the members.

• Who will have what responsibilities in the business

• How will disputes be resolved

• Rules for admitting additional partners

• Buy/sell rules

Business owners can create their own operating agreement by using templates found online or by reaching out to a business attorney..

This article is not meant to be financial advice and each businesses circumstances are different. Contact J & M Accounting today to see how this article could help your business.