Without this specific formality, your LLC can closely resemble a sole proprietorship or partnership, jeopardizing your personal liability. Once the document is signed by the members of the limited liability company, it acts as an official contract binding them to its terms. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners. Here are the basics every LLC owner should know about operating agreements:Īn operating agreement is a key document used by LLCs because it outlines the business' financial and functional decisions including rules, regulations and provisions. Regardless of your business structure, some paperwork like an operating agreement is expected. If you are seeking a business structure with more personal protection but less formality, then forming an LLC, or limited liability company, is a good consideration.
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