Glossary

Operating Agreement

Definition

An operating agreement is a legal document that defines the rights, responsibilities, and governance structure of a limited liability company (LLC). It serves as a contract between the members of the LLC, outlining how the company will be managed and operated.

Is an operating agreement required for an LLC?‍

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While many states do not legally require an operating agreement for an LLC, it is highly recommended to have one in place. An operating agreement helps establish clear guidelines for the management and operation of the LLC, protects the members' interests, and can prevent potential conflicts in the future.

Can an operating agreement be amended?‍

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Yes, an operating agreement can be amended. If all members agree to the proposed changes, an amendment can be made to the existing operating agreement. It is important to document any amendments properly and ensure that all members are aware of and agree to the changes.

What happens if an LLC does not have an operating agreement?‍

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Without an operating agreement, an LLC's governance and decision-making processes may be subject to default rules set by the state. This can lead to uncertainty, disputes, and potential legal issues. Having an operating agreement in place helps establish clear guidelines and protects the interests of the LLC and its members.

Can an operating agreement be oral or does it need to be in writing?‍

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While some states may accept oral operating agreements, it is highly recommended to have a written operating agreement. A written agreement provides clear documentation of the LLC's structure, management, and member rights, reducing the risk of misunderstandings or disputes in the future.

Can an operating agreement be changed without unanimous consent?‍

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The ability to change an operating agreement without unanimous consent depends on the provisions outlined in the existing agreement. If the operating agreement allows for changes to be made with a certain percentage of member approval, then unanimous consent may not be required. However, it is important to review the operating agreement and follow the specified procedures for making changes. ‍

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