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An Important Step for Your Business: Creating the Operating Agreement

Posted on: April 21, 2015

Creating the operating agreement for your business is by far one of the most important steps in its formation, and it is beneficial to hire a South Florida business formation attorney to ensure that no mistakes are made and that the appropriate business structure is used. The operating agreement is the contract between the owners of an LLC and the entity itself, and the agreement includes important terms that outline cash distribution, management rights, how members leave and join the company and more.

Your operating agreement needs to be properly set up to avoid disputes

Your operating agreement will need to be properly set up to avoid as many disputes as possible in the future, as disputes can be very costly to the business in several ways. The agreement will need to outline ownership and management rights between members so that everyone has clear expectations. Another important part of the operating agreement is cash distribution and profit and loss allocation, which should be clearly outlined in the agreement to avoid future disputes once the business’s income starts growing.

Management rights and responsibilities need to be outlined

The management rights for the company need to be outlined in the operating agreement. This helps to avoid disputes between members regarding management responsibility. If certain members are better at particular aspects of the company’s operation such as finance, human resources, marketing, or sales, those responsibilities should be divided accordingly based on each member’s experience and interest in those roles. By allocating decision making to each member and detailing it clearly in the operating agreement, the company will often work much more efficiently and future conflicts can often be avoided.

Non-competition and IP need to be addressed

The agreement should also have clauses that ensure that members cannot leave the corporation and compete against it or steal intellectual property. This can protect the company from unfair competition from members who take trade secrets and start a competing business in the event of a dispute. Non-compete clauses must be drafted by a South Florida business formation attorney to ensure that they are enforceable in court. More specifically, the term of the non-compete and its scope must be properly structured to be enforceable in the state of Florida or whichever state the company is registered in.

For more information about the critical aspects of an operating agreement that a lawyer can help you with preparing, contact Mark Schecter at Schecter Law.