There are numerous legal documents that entrepreneurs would be wise to have in place when they are starting their business. These documents establish rules, business structure, employment policies and myriad other factors that affect the way a company is set up and runs.

One such document is an operating agreement. However, not every business requires one of these, so it can be helpful to understand whether you need one and if so, what it should include.

When you should have an operating agreement

If your business is a limited liability company, or LLC, then you will want to create an operating agreement. While it is not required for LLCs in Tennessee to have this document, it can provide critical direction and protection for your company. 

What to include in an operating agreement

One primary purpose of an LLC operating agreement is to establish rules for the business. It can also protect the LLC status and identify a management structure in a binding legal document.

As such, the following elements should be part of a standard operating agreement: 

  • Number of members
  • Percentage of ownership for every member of the LLC
  • Expectations and permissions for members
  • Meeting and voting rules
  • Business management plans and structure
  • Guidelines for distribution of profits and losses
  • Details on how the business will add, withdraw or expel members
  • Tax treatments

While every operating agreement can be slightly different, in general, these are the more pertinent aspects that typically appear in these documents.

When created properly, these agreements can protect a business’s LLC status and provide critical direction to members, should confusion or conflict arise.

Part of a bigger package

As important as an operating agreement can be for an LLC, it is just one part of what should be a larger package. Again, there are numerous documents that prudent business owners will have prepared when starting a business. And while it can be overwhelming to navigate the creation of all this paperwork, owners can consult an attorney who can provide direction on these and other legal matters.