When starting a business, one important decision you need to make is what legal structure your company will take. Two of the most popular options are a limited liability company (LLC) and a corporation. While both of these structures offer liability protection, LLCs are often preferred by small business owners due to their flexibility and tax advantages.
Once you have decided to form an LLC, the next step is to create an LLC operating agreement. This document outlines how the LLC will be run, including the rights and responsibilities of each member, how profits and losses will be allocated, and how decisions will be made. However, it is important to note that an LLC operating agreement is not the same as a company agreement, and the two should not be confused.
What is a Company Agreement?
A company agreement is a legal agreement that outlines how a company will be managed and operated. This type of agreement is typically used for corporations and covers topics such as the board of directors, shareholder rights and responsibilities, and corporate governance. Unlike an LLC operating agreement, a company agreement is required by law for corporations, whereas an LLC operating agreement is often optional.
What is an LLC Operating Agreement?
An LLC operating agreement, on the other hand, is a document that outlines the internal workings of an LLC, including how the company will be managed, how profits and losses will be allocated, and how decisions will be made. This agreement is highly customizable and allows LLC owners to define the specific terms of their business’s operations.
While an LLC operating agreement is not required by law, it is highly recommended. This is because it helps ensure that all members of the LLC are on the same page when it comes to the operations of the business. Additionally, having an LLC operating agreement in place can help protect your personal assets in the event of a lawsuit or other legal dispute.
LLC operating agreements are typically created by an attorney or by using online legal document services. These agreements should be tailored to the specific needs of the LLC, including the number of members, the nature of the business, and the goals of the company.
In conclusion, while both a company agreement and an LLC operating agreement are important legal documents, they are not the same thing. A company agreement is required for corporations and covers issues related to corporate governance, while an LLC operating agreement outlines how an LLC will be run and is customizable to meet the specific needs of the business. Therefore, it is important for LLC owners to understand the differences between the two and ensure that they have an LLC operating agreement in place to protect their business and personal assets.