An operating agreement is a key document used by limited liability companies to outline the business' financial and functional decisions including rules, regulations, and provisions. While not all states require these documents the SBA also recommends that you file for one as a way to protect yourself and your business. If we are unable to find your business documents online, Operating Agreements are a requirement for LLCs that are applying for a Novo account.
Why do you need an operating agreement?
To protect the business' limited liability status: Operating agreements give members protection from personal liability to the LLC. Without this specific formality, your LLC can closely resemble a sole proprietorship or partnership, jeopardizing your personal liability.
To clarify verbal agreements: Even if members have orally agreed to certain terms, misunderstanding or miscommunication can take place. It is always best to have the operational conditions and other business arrangements handled in writing so they can be referred to in the event of any conflict.
To protect your agreement in the eyes of your state: State default rules govern LLCs without an official operating agreement. This means that each state outlines default rules that apply to businesses that do not sign operating agreements. Because the state default rules are so general, it is not advisable to rely on a governing body state to manage your agreement.
Tip: It is unwise to operate without an operating agreement even though most states do not require a written document. Regardless of your state's law, think twice before opting out of this provision.
Example Operating Agreement