How To Write A Small Business Operating Agreement

A forced perspective view from the end of a conference table, with several people seated along both sides of the table while a person writes on a white board at the far end of the table

An operating agreement is an important document that details how your business is to be run and managed, clearly stating the rules and regulations by which your business will be run. It includes the rights of partners, outside contractors, and more. While writing an operating agreement should be fairly straightforward, there are a few items that should be included that will make your business operate more smoothly. If you need help drafting an operating agreement, our small business consulting services could be right for you. Set up an appointment today to talk about your small business goals and read on for a few tips about writing an Operations Agreement.

Ownership Parameters

If your business has partners or a board, your Operating Agreement should include the names and titles of everyone involved, as well as each person's ownership percentages. In order to properly determine benefits, responsibilities, profits, losses, liabilities, and assets, this information will be essential, as these aspects are formulated using each member's ownership percentage. It will be important to get all co-owners, members, and partners to work together to create your Operating Agreement so everyone is up-to-date and is properly compensated.

Rights & Responsibilities

The rights and responsibilities of each member should be outlined clearly, including voting rights, requirements of each role within the company, salaries, and duties of each role. This section clearly details each members' role in the company. It is also where determinations are made regarding how much sway each member has in decision making that impacts the company, its members, and other stake holders.

Membership Rules

Members of your board or partners may eventually want to move on to other projects, so it is important to outline how people can leave your membership and the process for joining, as well. Having a detailed procedure in place for onboarding or offboarding members may not even seem like something that could happen right now, but the future is unknown and preparation is key to smooth transitions.

Dissolution

While it's never fun to think about the end - especially when things are just beginning - not having a plan for dissolution is a recipe for disaster. A business can close for any number of reasons, and not having a plan for dissolving the company can make for stressful situations with other members. Like other parts of your Operating Agreement, this section will detail member rights, roles, and responsibilities, but only in reference to what is to be done at the closing of the company. This section will detail who is responsible for what, how debts and assets are to be sold or distributed, and may even restrict members from opening a similar business for a certain amount of time.

Severability

This section details the protections of the agreement if any part of the agreement turns out to be in violation of a law in your state or federally. This ensures that the aspects of the agreement that are not in conflict with the law are still enforceable.

If you need help crafting an operating agreement, we are here to help! Schedule an appointment today with our business consultants to talk about your business and what you might need from an operating agreement, as well as any other questions you might have about your business.