The importance of an operating agreement

Creating a business is an exciting endeavor.  You, either on your own or with other partners, create an idea, come up with a company name and decide to register the company as a limited liability company within your state.  These are all important steps in forming a new business, but perhaps one of the most important steps that is oftentimes overlooked is the formation of a signed operating agreement between the members of the limited liability company.

The operating agreement is essentially the rules of engagement for members.  It creates rules for members to live by, such as:  adding investors; distribution of profits; management of the business; withdrawal of members or dissolution of the business.  It creates formality for the business and the members of that business.

Whether you are a new business in the early stages or one that has been around for years, the establishment of an operating agreement is important.  Take the time to establish an operating agreement today with your members, because having these discussions today will avoid the headache when misunderstandings or disagreements among members occur later.