Operating Agreements – Relevance For A Start-Up Venture

Introduction

An operating agreement is an important piece of document as it not only outlines the financial and functional decisions of a business including rules, regulations and provisions but also the contractual relationships at the helm of affairs.

The purpose of an operating agreement is to lay governance of the internal operations of a business in a manner that is in tandem with the specific needs of the business owners. Once signed by interested parties, it acts as an official contract binding them to its terms. An operating agreement is highly recommended for multi-member business ventures because it channelizes and structures such venture's resources, functions, finances and organization, and renders governing rules for smooth operation of the business. Main components in an operating agreement generally include percentage of interests, allocation of profits and losses, member's rights and responsibilities etc. Accordingly, operating agreements for a