Articles of Organization vs Operating Agreement
The Articles of Organization are a public document filed with the state, while the operating agreement is an internal document outlining rights and responsibilities of LLC members. The Articles of Organization typically include basic LLC details like name, address, registered agent, and members. The operating agreement provides more specifics on management, voting rights, profit distribution, and operations.
While Articles of Organization are required by state law to form an LLC, an operating agreement is not mandatory but highly advisable, as it provides clarity on the structure and internal workings of the business.
Contents of Articles of Organization and Operating Agreement
The Articles of Organization typically include the LLC’s name, legal structure, registered agent, management structure, effective date, and duration. The operating agreement explains adding and dropping members, selects managers, and provides details like meeting times.
Importance of Operating Agreements
Having an operating agreement allows members to refer back to agreed upon rules, which can reduce arguments and misunderstandings. Operating agreements give LLCs the ability to govern the business instead of using default state rules. It describes the economic and business arrangements of members.