Importance of an Operating Agreement

llc3.jpgRunning a successful enterprise is a dream held close to the hearts of most entrepreneurs. While considerations such as capital and business location are prime, intricate details such as partnership pact and operating agreements are undermined. Ignorance on the importance of documents may affect your business in one way or another in the course of its running.

This piece focuses on an operating agreement which is a document that highlights specific aspects of an enterprise, how its core business will run and how certain action of a partner/shareholder will affect the entity. It is therefore required that when drafting and finalizing an operating agreement, the following details are not left out;

– Voting rights of partners
– Profit share and distribution
– Capital requirements and structure
– Minimum and maximum share
– Extent of liability
–  Inheritance in the case of demise of a partner
– Accounting practices to adopt

What exactly are the benefits your business is likely to benefit from having an operating agreement?

The extent of liability is specified

While sole enterprises are fully owned by one person, partnerships and companies have a number of investors. During the formation phase, different amounts of input and capital are brought by different persons. The percentage share brought forth is used in quantifying individual shares of each contributory. This percentage is also used in determining the amount of liability in sharing of losses, and any other expenses incurred during the running of the enterprise such as bills and salaries to employees. With the agreements specified and put in place, minimal cases of absconding responsibilities relating to the enterprise will occur. You can learn about LLCs or for the best advice when filing your LLC, check it out!

Minimal legal battle

Legal fees are one of the most cost-intensive expenses a company may have to pay. Time consumed in legal battles also extends to a period of up to a decade. Time is one of the most valuable assets that are unrecoverable. To save both time and money spend in courtrooms as defendants and complainants, a business should clearly outline core issues in the operating agreement in a detailed manner. Constitutional referencing is also highly advisable as one of the best guides for a smoothly running enterprise.

Relationship of members is clearly outlined

Leadership wrangles are a major cause of disputes. A well-outlined membership structure within an operating agreement indicating top-level management and department heads minimize the possible occurrence of such wrangles within an organization.

An operating agreement is therefore without a doubt one of the guides to steer an enterprise into a swift accomplishment of its objectives and goals if effectively implemented. Continue reading more about this here:


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