When forming a limited liability company (LLC), there are two essential documents that you need to create – the operating agreement and the articles of organization. These documents are often confused with each other, but they serve distinct purposes in the formation and operation of an LLC.
In this article, we will discuss the difference between an operating agreement and articles of organization and why they are important for your LLC.
What is an Operating Agreement?
An operating agreement is a legal document that outlines the rules and regulations that govern the internal operations of an LLC. This agreement is created by the members (owners) of the LLC and is used to establish the roles and responsibilities of each member, the distribution of profits and losses, the management structure, and the decision-making process.
Although an operating agreement is not legally required in many states, it is highly recommended that an LLC has one in place. An operating agreement can help prevent misunderstandings and disputes between members, as it provides clarity on the expectations and obligations of each member.
What Are Articles of Organization?
Articles of organization, also known as a certificate of formation, are legal documents that are filed with the state to create an LLC. The document contains basic information about the LLC, such as its name, address, registered agent, and purpose.
In addition to this basic information, the articles of organization may also include details about the management structure, the duration of the company, the capital structure, and any dissolution or succession provisions.
The articles of organization serve as proof that the LLC exists and is authorized to do business in the state. They are required in all states and must be filed with the appropriate state agency, typically the secretary of state`s office.
Why Are These Documents Important?
Both the operating agreement and the articles of organization play important roles in the formation and operation of an LLC.
The articles of organization establish the LLC as a legal entity and provide important information to the state and the public. Without filing the articles of organization, the LLC cannot legally conduct business.
The operating agreement, meanwhile, ensures that the LLC is run smoothly and efficiently. By outlining the roles and responsibilities of each member and establishing the decision-making process, the operating agreement helps prevent misunderstandings and disputes between members.
Additionally, an operating agreement can help protect the personal assets of the members. Without an operating agreement, the LLC may be subject to default state laws, which may not offer the same level of protection to the members` personal assets in the case of liabilities or legal disputes.
Conclusion
In conclusion, an operating agreement and articles of organization are essential documents for any LLC. While the articles of organization establish the LLC`s legal existence, the operating agreement provides the internal framework for the LLC`s operations.
As a professional, I highly recommend that anyone forming an LLC consult with a business attorney to ensure that both the operating agreement and articles of organization are created correctly and tailored to the specific needs of the LLC. This will help prevent any legal issues or disputes down the road.