Many small business owners are choosing to form their companies as limited liability companies. If you are operating as a limited liability company, and there are partners who own the business with you, called members, it is imperative that you have an operating agreement for the company. The operating agreement, also sometimes referred to as a partnership agreement, sets the framework for how the company is going to operate, decides who is in charge of making decisions, and covers how money is going to be distributed, in addition to a host of other issues.
Unlike a corporation with chief executives and a board of directors, the person in charge of a limited liability company is called a Manager. Depending upon the language used in the operating agreement, the Manager may have sole discretion to run the company as he/she sees fit, including making decisions that can bind the company. If there are multiple members and they have agreed they all want to play a part in operating the business, the operating agreement needs to state that.
And although all business owners hope there are never going to be any problems when it comes to their partners, this is unfortunately not the case. So when the time comes where a dispute has arisen and needs to be resolved and the owners cannot resolve it on their own, a judge is going to first look at whether the issue is covered by the operating agreement. If it is, this will play a large part in how a judge is going to rule.
At the end of the day, if you and your partners operate a limited liability company, it is imperative that you have an operating agreement in place.