Operating Agreements

What is an Operating Agreement?

An Operating Agreement is probably the most important document your small business can have drafted.  Essentially, it plays the role of the business’ prenup, operating plan, and will.  It is your chance to set the course for how your business will operate in good times and in bad; how it will grow; how it will die; and what happens when it dies.  It is a crucial document that helps maintain growth and limit both legal and practical headaches.  It should be the document that is the road map to your success. It is your opportunity to set up the guidelines that will help you and your partners build the business in such a way that everyone stays happy and reaps the rewards of the venture.

What Should Your Operating Agreement Cover?

Here are a few essentials:

  1. Who’s managing the thing and what are his or her responsibilities?
  2. Are you going to allow more members? If so, how can they be added?
  3. What are the contribution requirements and how does that translate to ownership percentage?
  4. How are you going to deal with transferring ownership interests? Do you want to place limits? Do you want the business to have first crack at buying an exiting member’s interest?
  5. Voting – How? What? When? Where? …and the big one – who’s responsible for counting and keeping records?
  6. What are the triggering events for dissolving the business? Procedures? Who gets what?

These are just a few starting points – this is your agreement and can cover (basically) whatever you want it to cover…that’s the beauty of it. Our advice – invest the time and money to have a skilled business attorney draft your agreement to your unique needs. Don’t settle for a template document. Even if you’ve been in business for twenty years, if you don’t have an operating agreement, get one! You never think you’ll need one until you do – and then it’s too late.

How We Approach Operating Agreements

At Carpenter Gandhi, we can’t tout the importance of a well drafted operating agreement enough.  Since our practice is tailed to small business and small business owners, we know the most problematic areas.  We use a detailed process in order to produce the strongest document possible.  We consult with a new client to discuss the business and the growth plans.  We ask many questions about every area of the business and the business plans.  We want our clients to give great thought into how they want the business to grow, operate, and perhaps even die.  While the process is exhaustive, it produces a unique document that will help our clients drive success.  We want our clients to leave in a position of control and confidence.  We aren’t in the business of letting our clients walk out the door with a template document that ends up with little worth to them.  Our clients are an integral part of the documents we create and we want them to feel confident in the road map it creates for their success.