What is an Operating Agreement and Why Is It Important for My LLC?

What is an Operating Agreement and Why Is It Important for My LLC?

Operating Agreements are contracts associated with limited liability companies, or LLCs.  Operating Agreements are not legally required for an Oregon LLC, but it is very important for the owners of an LLC (its Members) to have an Operating Agreement to regulate the management and affairs of the LLC and to comply with applicable law, the LLC’s Articles of Organization, and to set forth the relationships of the Members.  This is especially true if there is more than one Member.

In the absence of an Operating Agreement, Oregon statutes govern the Member’s rights and responsibilities.  Often, statutes do not address important Member governing their business expectations and roles.  In the absence of a clear, comprehensive, and clear Operating Agreement, the LLC and its Members will lack important consensus regarding the business and the Members’ relationships which will lead to misunderstandings and sometimes expensive litigation.  Without this prior planning in place, the LLC and its Members are left with limited alternatives to resolve disputes and limited options to address inevitable changes in the LLC’s business structure that are part of life.

A well-crafted, personalized, and comprehensive Operating Agreement is highly recommended.  Please avoid the tendency to cut corners, use generic forms, or not having an Operating Agreement in place.  Take the time to contact competent legal counsel to draft and/or negotiate a favorable Operating Agreement for you and your LLC.

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