Why Is An Operating Agreement Necessary?
Apart from the fact that an operating agreement is necessary to ensure that every founding member knows exactly where they stand, you should have an operating agreement for these four basic reasons.
Protection From LiabilityYour operating agreement spells out exactly what kind of business model you are running. In most cases, it is not enough to simply state that your business model is an LLC or LLP and file as such.
If your operating model does not sufficiently show that you are operating as an LLC, a court can go after the personal assets of members to fulfil the company*s debts. The best way to show this clearly is through an operating agreement.
Address your peculiar needsEvery business has unique needs and goals. There is a certain way you want your business to operate and the best way to implement this is through your operating agreement.
If you do not outline your model exactly, it is likely that general provisions of law will be applied to your company and this is something that can work against your needs.
Outline RolesA business works best when everyone knows what they are expected to be doing and focus on doing just that. This way, no effort goes to waste and unnecessary friction is avoided. The operating agreement spells this out in clear terms so no one can claim a right to benefits or rewards they are not entitled to.
Manage DisputesDisputes are a fact of life, even among multi-million-dollar business partners. You can write dispute resolution mechanisms into your operating agreement to ensure that disputes are well managed before escalating.
This obviously helps business productivity and outlook. You can also provide for how the company can come to an end or buying out partners.