An S corporation operating agreement outlines how a corporation will operate. It is a legal document covering aspects like ownership structure, management structure, voting rights, profit/loss distribution. Although not legally required, experts advise S corps to create an operating agreement.
An operating agreement clarifies shareholder roles and establishes how the company functions. It ensures the business runs smoothly and makes the S corp tax status clear.
The Importance of an Operating Agreement
Reasons to have an operating agreement:
- Documents policies and rules
- Conforms to federal/state regulations on matters like recording meetings and IRS tax codes
- Avoids tax penalties and fees from failing to follow guidelines
Drafting an S Corp Operating Agreement
To create an S corp operating agreement:
- Research state corporate laws
- Include basic corporation information
- Use customizable templates designed for various corporate structures
- Consult legal professionals for optimal, legally sound documents
The operating agreement aids a limited liability company while articles of organization establish the business. Bylaws are internal governing documents for corporations.
Clarifying S Corp vs. LLC
What is the difference between an LLC and an S corp?
Bylaws are internal governing documents for corporations. Articles of organization establish a business. An agreement outlines procedures for a limited liability company.
Is an S corp considered a corporation?
Bylaws are internal governing documents for corporations, while an operating agreement outlines procedures for a limited liability company (LLC), emphasizing the distinction between different business structures.