Yes, You Do Need an Operating Agreement

Many states do not require you to have an operating agreement for your Limited Liability Company (“LLC”). Washington falls into this category, but that most certainly does not mean you do not NEED an operating agreement. Many states do not require motorcyclists to wear helmets, but that does not stop helmets from being lifesavers. If you want to give your business the best chance to succeed and prepare it for any future trials and tribulations, you need to have an operating agreement in place.

What is an operating agreement?

An operating agreement is an essential document for businesses, most often drafted at the very foundation of the company. It does not matter whether the owners organize as an LLC, a general partnership, or a Limited Liability Partnership. An operating agreement is an important safety net. In an operating agreement, the owner(s) detail each owner’s rights, responsibilities, benefits, and liabilities.

Only an experienced business law attorney like those at APH Law should draft the operating agreement. An operating agreement for your business is far too important to leave to an amateur, and it is essential that your document reflect your company’s unique needs and goals. Contact our offices today to learn more about how we can help.

Why should you have an operating agreement?

1) Maintain liability protection

The main advantage of an LLC is its “limited liability.” An LLC protects the personal assets of the members of the LLC from business liabilities. However, simply filing as an LLC does not guarantee protection. If you fail to demonstrate intent to operate your LLC as a truly separate entity from your personal life and finances, a court may pierce the veil of protection and go after members’ personal assets to fulfill business debts. An operating agreement helps establish a true intent to operate your business as a separate, unique entity.

2) Laws may not be enough

Without an operating agreement, the business is vulnerable to the mercies of Washington default statutes regarding things like business structure and operations, and the law takes a “one size fits all” approach. It does not account for every business’s unique needs. Every business needs to assess their own goals and draft a comprehensive operating agreement that structures their company in a way that works best for them.

3) Everyone knows their roles

With an operating agreement, everyone’s roles within the company are clearly defined. Everyone has their roles written down on paper and understands one another’s expectations of each other. No one can say that they do not know their role in the business. No one can claim a right to unearned benefits or rewards. Operating agreements allow you to ensure that every member of your company is on the same page so that you can avoid costly and damaging disputes arising from misunderstandings.

4) Dispute management

Business partners disagree. It is a simple fact. You are not always going to be of the same opinion, and some disputes could escalate to major proportions. In the event that partners disagree, it is imperative to have an operating agreement in place to ensure the dispute is resolved in a manner which is fair to all parties and minimally damaging to the business. Your agreement will define procedures for how disputes should be managed. Additionally, it will define what may happen if a dispute is so severe that it cannot be resolved, dictating terms for ending the company or buying out partners when necessary.

And this is just a small sampling of the potential benefits of drafting an operating agreement for your company. If you are forming an LLC or a partnership, please do not hesitate to contact APH Law and let us guide you throughout the process, including helping you draft an effective operating agreement.

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Written by APH Law PLLC

APH Law PLLC

When we founded APH Law PLLC in 2010, we did so out of a desire to connect business owners with more and better opportunities. No matter what industry you’re operating in, creating a strong foundation, preparing for the future, and protecting against challenges are key to long-term success. It is this kind of support that we take tremendous pride in helping businesses.