ContractsCounsel Logo

Business Operating Agreement

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 9,787 reviews
No Upfront Payment Required, Pay Only If You Hire.
Home Types of Contracts Business Operating Agreement

Jump to Section

A business operating agreement is a document used by LLCs to outline the financial and functional decisions, like the different rules and provisions in the U.S. This particular document has a business structure that provides a flexible and separate legal entity for its owners (members). It often combines elements of both partnerships and corporations. Let us learn more about the essential aspects of a business operating agreement below.

Benefits of Drafting a Business Operating Agreement

A business operating agreement is not just a legal necessity but a strategic tool that fortifies several benefits. Individuals interested in such documents must know about the following:

  • Fortifying the Corporate Veil: An operating agreement is important for reinforcing the "corporate veil," a legal separation between the business and its owners that safeguards personal liability. By explicitly outlining liability provisions, the agreement compels courts to recognize and respect the limited liability status claimed by the business.
  • Solidifying Member Agreements: During the business formation process, members must establish agreements on ownership, responsibilities, compensation, and more. An operating agreement serves as the bedrock for these foundational decisions. Without it, there may be insufficient legal grounds to enforce initial guidelines, risking disputes and undermining the coherence of ownership percentages.
  • Defining Key Business Procedures: While the articles of organization formalize the existence of an LLC, they lack specificity regarding operational procedures. An operating agreement delves into the details of important business procedures such as voting mechanisms, meeting protocols, communication strategies, and conflict resolution. This clarity enhances organizational efficiency and ensures members adhere to established procedures.
  • Avoiding State Default Laws: Operating agreements empower an LLC to steer clear of generic state default laws that dictate operations without a personalized agreement. Crafting an operating agreement provides the LLC with autonomy in defining and regulating its internal processes, freeing it from restrictive state regulations.
  • Adding Legitimacy to the Business: An effective operating agreement marks professionalism, showcasing a commitment to organizational structure and legal consciousness. While forming an LLC is relatively straightforward, an operating agreement demonstrates a business's intentional approach to organization, signaling preparedness to face challenges. This level of organization is particularly important for earning trust from entities such as banks, which may require an operating agreement before establishing business accounts.
  • Guiding Business Succession Planning: Business operating agreements can address matters related to business succession, ensuring a smooth ownership transition in the event of a member's departure, retirement, or other triggering events. Provisions for buy-sell agreements and succession plans help maintain stability and continuity within the business, safeguarding against potential disruptions.
  • Enhancing Borrowing Credibility: Lending institutions and financial stakeholders often view a well-drafted operating agreement as a sign of a well-organized and legally conscious business. Having such a document can enhance the credibility of the business when seeking loans or partnerships. It demonstrates a commitment to clear governance and mitigates potential risks, instilling confidence in external parties involved with the business.

Aspects to be Included in a Business Operating Agreement

Drafting a comprehensive business operating agreement is essential for establishing clear guidelines and expectations among members. The document should cover various important aspects in a structured format:

  • Ownership Percentages: Clearly outline the ownership percentage of each member, providing transparency and establishing the financial stake of each individual in the LLC.
  • Responsibilities and Voting Rights: Define the responsibilities of each member within the LLC, along with their respective voting rights. This ensures that decision-making processes are transparent and aligned with the members' roles.
  • Duties and Powers of Members: Lay out each member's specific duties and powers. It helps in delineating their authority and involvement in the day-to-day operations of the LLC. This also helps avoid ambiguity and establishes a framework for collaboration.
  • Profit and Loss Allocation: Specify how profits and losses will be allocated among members. This includes the distribution of financial gains and losses based on ownership percentages, contributing to a fair and equitable financial structure.
  • Meeting Procedures and Voting Rules: Establish rules and procedures related to holding meetings and taking votes. This section ensures that decision-making processes are conducted systematically and that all members have a voice in important matters.
  • Management of the LLC: Detail the structure and processes related to the management of the LLC. Define whether it will be member-managed or manager-managed and outline the decision-making authority of members or appointed managers.
  • Buyout and Buy-Sell Provisions: Include provisions for buyouts and buy-sell agreements, specifying the procedures and terms when a member wishes to leave or sell their share. Address contingencies such as the death of a member and outline the steps for a smooth ownership transition.
Meet some lawyers on our platform

Zachary J.

296 projects on CC
View Profile

Benjamin W.

74 projects on CC
View Profile

Ryenne S.

555 projects on CC
View Profile

Sara S.

104 projects on CC
View Profile

Articles of Incorporation vs. Business Operating Agreement

A business operating agreement and articles of incorporation are foundational documents that play distinct roles in the formation and governance of a business. While both are essential for establishing legal frameworks, they serve different purposes and are associated with different business structures.

  • Scope and Applicability
    • Business Operating Agreement: Primarily used for LLCs and certain partnerships, governing internal operations and member relationships.
    • Articles of Incorporation: Exclusive to corporations, filed with the state to officially establish legal recognition.
  • Content Focus
    • Business Operating Agreement: Emphasizes internal governance, ownership structure, profit allocation, and member-specific details.
    • Articles of Incorporation: Concentrates on foundational information such as corporate name, purpose, registered agent, share structure, and principal place of business.
  • Flexibility
    • Business Operating Agreement: Highly flexible, allowing members to customize internal structures and procedures.
    • Articles of Incorporation: Generally more standardized, with less flexibility, serving as a formal declaration of corporate existence.
  • Business Structure
    • Business Operating Agreement: Applicable to LLCs and certain partnerships with a focus on member-managed or manager-managed structures.
    • Articles of Incorporation: These pertain specifically to corporations, detailing the authorized share structure and other corporate features.
  • Legal Recognition
    • Business Operating Agreement: Internal document, not typically filed with the state, governing internal affairs without direct legal recognition.
    • Articles of Incorporation: Filed with the state to officially create a corporation, providing legal recognition and protection.

Key Terms for Business Operating Agreements

  • Member Financial Interest: Specifies the financial stake and ownership interest each member holds in the company, outlining their share of profits, losses, and equity.
  • Corporate Governance: Governs the decision-making structure and processes within the organization. It often helps delineate the roles and responsibilities of members, managers, and officers.
  • Corporate Officer's Power and Compensation: Outlines the authority, duties, and compensation of corporate officers. It helps individuals clarify all their roles in directing and managing the company's day-to-day operations.
  • Non-compete: Imposes restrictions on officers, employees, as well as members from engaging in competitive activities. Such activities may conflict with the interests of the company during and after their association with the business.
  • Books and Records Audit: Establishes the right of members to inspect and audit the company's books and records. It helps ensure transparency and accountability in financial matters and decision-making processes.

Final Thoughts on Business Operating Agreements

The business operating agreement serves as the backbone of an LLC. It provides a framework that not only defines the internal structure, ownership, and management but also safeguards the interests of its members. Beyond legal compliance, this document fosters transparency, mitigates disputes through predefined mechanisms, and allows adaptability as the business evolves. Its importance lies not only in delineating operational procedures but also in enhancing the business's credibility, offering financial stability, and preserving the limited liability status of its members. The document serves as a tool that contributes to the success, longevity, and resilience of the business by establishing clear guidelines for collaboration, decision-making, and dispute resolution.

If you want free pricing proposals from vetted lawyers that are 60% less than typical law firms, Click here to get started. By comparing multiple proposals for free, you can save the time and stress of finding a quality lawyer for your business needs.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Business Operating Agreement Lawyers

David W. on ContractsCounsel
View David
5.0 (1)
Member Since:
September 27, 2021

David W.

Free Consultation
8 Yrs Experience
Licensed in WI
Marquette Law School

The Law Office of David Watson, LLC provides comprehensive and individualized estate-planning services for all stages and phases of life. I listen to your goals and priorities and offer a range of estate-planning services, including trusts, wills, living wills, durable powers of attorney, and other plans to meet your goals. And for convenience and transparency, many estate-planning services are provided at a flat rate.

Samuel R. on ContractsCounsel
View Samuel
5.0 (40)
Member Since:
October 2, 2021

Samuel R.

Free Consultation
Phoenix - Arizona
5 Yrs Experience
Licensed in AZ, PA, UT
Widener University Delaware Law School

My career interests are to practice Transactional Corporate Law, including Business Start Up, and Mergers and Acquisitions, as well as Real Estate Law, Estate Planning Law, Tax, and Intellectual Property Law. I am currently licensed in Arizona, Pennsylvania and Utah, after having moved to Phoenix from Philadelphia in September 2019. I currently serve as General Counsel for a bioengineering company. I handle everything from their Mergers & Acquisitions, Private Placement Memorandums, and Corporate Structures to Intellectual Property Assignments, to Employment Law and Beach of Contract settlements. Responsibilities include writing and executing agreements, drafting court pleadings, court appearances, mergers and acquisitions, transactional documents, managing expert specialized legal counsel, legal research and anticipating unique legal issues that could impact the Company. Conducted an acquisition of an entire line of intellectual property from a competitor. In regards to other clients, I am primarily focused on transactional law for clients in a variety of industries including, but not limited to, real estate investment, property management, and e-commerce. Work is primarily centered around entity formation and corporate structure, corporate governance agreements, PPMs, opportunity zone tax incentives, and all kinds of business to business agreements. I have also recently gained experience with Estate Planning law, drafting numerous Estate Planning documents for people such as Wills, Powers of Attorney, Healthcare Directives, and Trusts. I was selected to the 2024 Super Lawyers Southwest Rising Stars list. Each year no more than 2.5% of the attorneys in Arizona and New Mexico are selected to the Rising Stars. I am looking to further gain legal experience in these fields of law as well as expand my legal experience assisting business start ups, mergers and acquisitions and also trademark registration and licensing.

Atilla B. on ContractsCounsel
View Atilla
5.0 (1)
Member Since:
October 4, 2021

Atilla B.

Free Consultation
Denver, CO
5 Yrs Experience
Licensed in CO, DC
American University - Washington College of Law

Atilla Z. Baksay is a Colorado-based attorney practicing corporate and securities attorney. Atilla represents clients in the negotiation and drafting of transactional (e.g. master service, purchase and sale, license, IP, and SaaS agreements) and corporate (e.g. restricted stock transfers, stock options plans, convertible notes/SAFE/SAFT agreements, bylaws/operating agreements, loan agreements, personal guarantees, and security agreements) contracts, in-house documents (e.g. employment policies, separation agreements, employment/independent contractor/consultant agreements, NDAs, brokerage relationship policies, and office policy memoranda), and digital policies (e.g. terms of service, privacy policies, CCPA notices, and GDPR notices). Atilla also reviews, and issues legal opinions concerning, the security status of digital currencies and assets. Following law school, Atilla practiced international trade law at the Executive Office of the President, Office of the United States Trade Representative, where his practice spanned economic sanctions enacted against goods originating in the People’s Republic of China valued at $500 billion. Afterwards, Atilla joined a Colorado law firm practicing civil litigation, where the majority of his practice comprised of construction defect suits. Today, Atilla's practice spans all corporate matters for clients in Colorado and the District of Columbia.

Gregory B. on ContractsCounsel
View Gregory
5.0 (84)
Member Since:
October 18, 2021

Gregory B.

Free Consultation
San Diego, CA
5 Yrs Experience
Licensed in CA
University of San Diego

I love contracts - and especially technology-related contracts written in PLAIN ENGLISH! I've worked extensively with intellectual property contracts, and specifically with IT contracts (SaaS, Master Subscriptions Agreements, Terms of Service, Privacy Policies, License Agreements, etc.), and I have built my own technology solutions that help to quickly and thoroughly draft, review and customize complex contracts.

Jordan M. on ContractsCounsel
View Jordan
5.0 (2)
Member Since:
October 14, 2021

Jordan M.

Free Consultation
Houston, TX
5 Yrs Experience
Licensed in TX
University of Houston Law Center

I am a software developer turned lawyer with 7+ years of experience drafting, reviewing, and negotiating SaaS agreements, as well as other technology agreements. I am a partner at Freeman Lovell PLLC, where I lead commercial contracts practice group. I work with startups, growing companies, and the Fortune 500 to make sure your legal go-to-market strategy works for you.

Clara D. on ContractsCounsel
View Clara
Member Since:
October 8, 2021

Clara D.

Free Consultation
21 Yrs Experience
Licensed in IL
University of Chicago

After graduating from The University of Chicago Law School in 2002, Clara spent eight years in private practice representing clients in complex commercial real estate, merger and acquisition, branding, and other transactional matters. Clara then worked as in-house counsel to a large financial services company, handling intellectual property, vendor contracts, technology, privacy, cybersecurity, licensing, marketing, and otherwise supporting general operations. She opened her own practice in September of 2017 and represents hedge funds, financial services companies, and technology companies in a range of transactional matters.

Grant P. on ContractsCounsel
View Grant
Member Since:
October 12, 2021

Grant P.

Free Consultation
New York
21 Yrs Experience
Licensed in FL, NJ, NY

Founder and owner of Grant Phillips Law.. Practicing and licensed in NY, NJ & Fl with focus on small businesses across the country that are stuck in predatory commercial loans. The firm specializes in representing business owners with Merchant Cash Advances or Factoring Arrangments they can no longer afford. The firms clients include restaurants, truckers, contractors, for profit schools, doctors and corner supermarkets to name a few. GRANT PHILLIPS LAW, PLLC. is at the cutting edge of bringing affordable and expert legal representation on behalf of Merchants stuck with predatory loans or other financial instruments that drain the companies revenues. Grant Phillips Law will defend small businesses with Merchant Cash Advances they can no longer afford. Whether you have been sued, a UCC lien filed against your receivables or your bank account is levied or frozen, we have your back. See more at

Find the best lawyer for your project

Browse Lawyers Now

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Business Operating Agreement lawyers by city
See All Business Operating Agreement Lawyers
related contracts
See More Contracts
other helpful articles

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

View Trustpilot Review

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

View Trustpilot Review

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

View Trustpilot Review

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city