What Should Be Included in an Operating Agreement?
While partnership/operating agreements are unique and tailored to the specifics of each business, there are certain common elements that these agreements should include:
Ownership
- Is your business willing to take on new partners? If so, what percentage are you willing to sell to a new partner, and how will the other partners’ percentages be diluted in such a transaction?
- If one of the partners wants to sell his/her percentage, what are the buyout options for the other partners?
- Under what circumstances can a partner be terminated/removed from the company?
- If one partner sells out, what safeguards do the other partners have that the exiting partner will not compete against them and steal their clients?
- What happens if one of the partners dies? Will the company set up key member life insurance so the others can buy out the deceased partner’s percentage?
Contribution
Distribution
Decision-Making
Dispute Resolution
Dissolution
When you go into business with one or more other individuals, it is important to take the time to set up a comprehensive operating agreement. With a well though-out agreement in place, you can rest easy knowing that the important issues have been covered, so you can focus on running your business.
At AMS, we provide expert guidance with operating agreements. Putting our extensive experience to work, we can help you and your partners craft an agreement that thoroughly addresses your needs and makes sense for your business. After the components of the operating agreement have been agreed on by all parties, the document should be drafted and reviewed by an attorney to make it legally enforceable.