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

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

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

In the absence of an Operating Agreement, statutes will govern the rights and responsibilities of the Members.  Sometimes, these default rules are inconsistent with what the Members want in terms of their respective rights and responsibilities.  Often, statutes do not address many important issues between Members that govern 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 often lead to misunderstandings, and sometimes expensive litigation.  Without this planning in place, the LLC and its Members will be left with limited alternatives to expensive and stressful court processes to resolve disputes and limited options to address inevitable changes in 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.  Please take the time to contact competent legal counsel to draft and/or negotiate a favorable Operating Agreement for you or your LLC.

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