Drafting Operating Agreements

April 13, 2006

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To take advantage of numerous asset protection strategies that limit liability in your business structure, the small business owner is most likely to form a limited liability company (LLC) or a corporation.

In either case, it is, at the very least, prudent to have an operating agreement. In the case of the statutory close corporation, an operating agreement may be legally required. In the case of a corporation, the operating agreement is usually called the "bylaws."

When there are two or more owners of the entity, an operating agreement is especially desirable, because it can eliminate misunderstandings among the owners.

In addition, the operating agreement, in conjunction with the articles of organization, can be used to control voting, management structure and authority, division of profits, resolution of disputes, disposition of ownership interests and many other issues.