An operating agreement is a legal document that governs how your company operates. In addition to protecting your company’s assets, it helps you avoid personal liability. When you form an Oklahoma limited liability company (LLC), you must draft an operating agreement. This article provides a basic overview of an operating agreement and why you might want one.
An operating agreement’s primary purpose is to protect your company’s assets from outside claims. If someone sues your company, the court will look to see whether there was an operating agreement in place. If there wasn’t, the court could find that your company had no protection against lawsuits.
If you don’t have an operating agreement, your company is considered “unincorporated.” Unincorporated companies do not have corporate protections such as limited liability, and they cannot sue or be sued. They must file taxes separately, and their owners are personally liable for any debts incurred by the company.
To provide some degree of protection, unincorporated businesses often hire lawyers to represent them in court. However, hiring a lawyer does not eliminate personal liability; rather, it shifts it onto the attorney. For example, if your company hires an attorney to defend itself against a lawsuit, the attorney becomes responsible for paying the costs associated with defending the suit.
Operating agreements provide additional protections for your company. These include provisions regarding ownership, management, and distributions. Ownership refers to who owns what percentage of the company. Management refers to who manages the day-to-day operations of the company. Distributions refer to how much money goes out of the company each month.
For example, suppose your company is owned equally by three people. One person owns 25%, another 50% and the third 25%. Under this scenario, each owner has equal responsibility for managing the company. Each owner receives a monthly distribution based on his/her percentage of ownership.
In contrast, imagine that your company is owned entirely by one person. He/she owns 100% of the company. There is no management team. And the company makes no distributions. Without an operating agreement, the sole owner would be personally liable for any debts the company incurs.
How Important to have LLC operating agreement in Oklahoma?
An operating agreement is required for most types of businesses. If you plan to hire employees or contract out work, you must draft one. This document helps ensure that everyone involved understands their responsibilities in case of a dispute. You can find sample operating agreements online. They vary depending on the type of business entity you choose, but many include provisions such as how much equity each member owns, whether dividends are paid, and how decisions are made.
If you form an LLC in Oklahoma, you don’t need to draft an operating agreement unless you want to do something special. However, it’s still good practice to write one. Here are some reasons why:
• Avoid confusion about ownership. All LLC members must sign documents stating who owns what percentage of the company. If you don’t have an operating agreement, someone could claim he owns 50% of the company even though his name isn’t listed anywhere.
• Protect against lawsuits. In addition to being able to sue you, a partner can sue the company for unpaid debts
• Make sure everyone knows what’s expected. When you’re working together, it’s important to know what each person’s role is. If you don’t agree on who does what, you might end up arguing over it later.
Drafting an operating agreement takes less than 30 minutes. Once you’ve completed it, you can print it out and give it to anyone who wants to join your company.
1. Your operating agreement proves you own your LLC.
Oklahoma law requires that each person listed in the operating agreement of a limited liability company must sign it. If one of those people doesn’t sign, the company can’t operate. So what happens if someone signs without reading it? You might think that they just agree to some legal mumbo jumbo, but that’s actually not true.
A recent case in Tulsa illustrates how important it is to read the operating agreement carefully. A man named David L. Gentry opened a business checking account at First National Bank of Oklahoma City. He signed his name next to the signature box, but he didn’t read anything else. When the bank tried to close the account because he hadn’t paid any fees, he argued that he had never agreed to pay any fees. But the court ruled against him.
The judge found that even though Mr. Gentry hadn’t read the entire document, he still understood that he needed to agree to pay the bank fees. “We find that signing the operating agreement does not constitute assent to terms,” Judge James F. Goodwin wrote in his decision. “However, we do find that the Defendant did understand that he was entering into a contract with the Plaintiff and that he knew that he was obligated to pay certain fees.”
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So if you don’t know exactly what you’re signing, make sure you take the time to read the whole thing. And if you’ve got questions about whether something is part of your operating agreement, check out our guide to Oklahoma LLC laws.
2. An operating agreement can help reinforce your limited liability status.
An operating agreement is a contract that governs how your company operates. In most states, it must be signed by every member of the LLC. This document usually includes provisions such as what happens to the assets of the company upon dissolution, whether there are voting requirements, and how much each owner owns in the company.
There are several different types of operating agreements. Some companies use a simple one-page form. Others employ a multi-page document that addresses everything from the name of the company to the division of profits among the owners.
The best way to determine which type of operating agreement you need is to consult with an attorney. He or she can review your situation and recommend the appropriate documents.
What is included in a Oklahoma LLC Operating Agreement?
An operating agreement is the legal contract that governs every aspect of your company’s operation. This includes how much money each member receives, what happens to profits, how disputes are resolved, etc. An operating agreement serves as the foundation for your company and it is important to include specific language that addresses issues like these.
When setting up your LLC, there are several options for how to organize your documents. One option is to use a “hybrid” format where you combine articles of organization and operating agreements into one document. Another option is to keep everything separate. And finally, you can choose to use a combination of the two formats.
The most common operating agreement type is a “member profit sharing agreement.” In this form, members receive distributions based on their ownership interest in the company. If you’re interested in learning more about this type of operating agreement, check out our article here.
Another popular operating agreement type is a “management agreement.” Here, managers make decisions regarding the day-to-day running of the company. For example, they could decide whether to hire employees or subcontract work. They also manage the finances of the company.
In addition to managing the finances, managers can also oversee the day-to-date activities of the company. Managers can do things such as approve bills, pay vendors, and resolve conflicts among members.
Finally, some companies opt to use an operating agreement that combines elements of both types. These hybrid agreements often contain provisions related to management while also providing a distribution schedule for members.
There are many different ways to organize your operating agreement. But whatever method you choose, it’s important to remember that your operating agreement sets the tone for your company. So make sure it reflects your values and vision.
What is an OKLAHOMA LLC operating agreement?
An Oklahoma LLC operating agreement is a legal document that governs the internal operations of your LLC. This includes how you manage your money, what happens if one member wants out of business, and how decisions are made within your organization.
The purpose of an Operating Agreement is to protect both you and your partners. By having a written document that spells out the rules of your LLC, it makes sure no one gets hurt during disagreements and that everything runs smoothly once you decide to dissolve your LLC.
In addition to protecting yourself and your partners, an Operating Agreement protects your LLC against lawsuits. If someone sues your LLC, the court will look to see whether there was a valid reason for the lawsuit. Did the plaintiff suffer damages? Was the defendant acting outside the scope of his authority? If the answer to either question is yes, the court could find in favor of the plaintiff. In contrast, if the Operating Agreement clearly states that you cannot fire anyone without cause, the court will find in favor of the LLC because the firing was done according to the terms of the Operating Agreement.
Steps After Creating Your Oklahoma LLC Operating Agreement
An operating agreement should be reviewed regularly to ensure that it accurately represents the organization’s current status. If you are a sole proprietor, partnership, or corporation, you must review your operating agreement every three months to ensure it accurately reflects the current status. You will want to do this even if there are no changes to the members or activities of the company.
You may find it helpful to keep track of what needs to be updated in your operating agreement. For example, if you add a new person to the company, you might want to update the list of officers and directors. Or, if you change the company’s name, you might need to update the address of the registered office.
If you discover something missing from your operating agreement, don’t wait until the next meeting. Contact us immediately so we can help you correct the situation.
Frequently Asked Questions
Does a single-member LLC need an operating agreement?
If you want to start a business, there are many things you must do, including choosing a name, registering it, opening a bank account, getting insurance, etc. But one thing you don’t think about too much is whether or not you need an operating agreement. If you’re starting a small business, chances are you won’t have employees, so you probably won’t need an operating agreement. However, you’ll need an operating agreement if you plan to hire employees or expand beyond just one person.
In fact, if you’re planning to register your business as a corporation, you’ll need an Operating Agreement. And if you’re thinking about opening a business bank account, you’ll need an agreement. In both cases, an operating agreement will ensure you avoid some potential pitfalls down the road.
When should I create my operating agreement?
While it’s a good idea for every LLC to have one, there are no deadlines set forth by the state regarding when you should file your articles of organization. However, most states do encourage you to wait until the formation process is completed. This includes completing any necessary paperwork, registering your name, paying any fees related to forming your entity, and obtaining a tax ID number. In addition, it’s important to note that many banks require you to submit a copy of your operating agreement before opening a business bank account. Therefore, waiting until everything is ready before starting the formalities makes sense.
James Rourke is a business and legal writer. He has written extensively on subjects such as contract law, company law, and intellectual property. His work has been featured in publications such as The Times, The Guardian, and Forbes. When he’s not writing, James enjoys spending time with his family and playing golf.