Overview of Operating Agreement and Articles of Incorporation
- An operating agreement is an internal document that defines how the owners of a business professionally relate to each other.
- The articles of incorporation legally establish a business as a corporation.
- Both documents define ownership and management structure but differ on legal structure, state requirements, tax outcomes, and rigidity.
Purpose and Differences
- The articles of incorporation establish a formal, legal structure with tax benefits.
- Operating agreements define how owners relate professionally in a binding way.
Key Points to Note
- Every LLC should draft an operating agreement, and every corporation should draft bylaws and articles of incorporation.
- Consult legal advice for help with governance documents.
Are operating agreements and articles of organization the same thing?
- No. Articles of Organization legally establish an LLC while operating agreements define how owners relate professionally.
Legal Significance and Requirements
- Both documents are important legally. Articles are a legal requirement and public record. Operating agreements are legally binding between owners.
Essential Aspects
- Specific wording is required in both documents. Vague language causes problems.
- Consult lawyers when drafting governance documents.
Conclusion
- An incorporated business needs an operating agreement too.
- Operating agreements differ from articles of incorporation in legal structure and state laws.