Many small business owners in Washington might be familiar with limited liability companies, also known as LLCs. Setting a business up as an LLC has a lot of financial and legal benefits for business owners that all come down to the operating agreements.

What is an LLC operating agreement?

The operating agreement essentially outlines the rules and guidelines for an LLC. Operating agreements are different based on the business its for and can be custom tailored by business owners. Operating agreements might outline things like:

• Percentage of members’ ownership

• Responsibilities of members and manager

• Distribution of profits and losses

• How often meetings or votes should be held

The operating agreement will address things big and small, so technically anything can be put into the operating agreement. Regardless, the overall goal is to provide a guideline for how the business should be governed and run.

Benefits of an operating agreement

Operating agreements also outline the goals of the business and work to reduce an individual’s liability. Small businesses often only have one or two owners. If a business appears to be a sole proprietorship or even a partnership, it can be easier to tie an individual’s assets into legal disputes with the business.

The operating agreement will also protect the LLC from certain laws set forward by the state. They also provide written documentation for any verbal agreements made by the owners.

Do you need an operating agreement?

Technically, no, LLCs are not required to have an operating agreement. With that being said, operating agreements can be extremely beneficial for all involved. In addition to giving you a blueprint for how the business should be run, it also provides legal protection in future disputes.

If your business does have an operating agreement, it should be kept with the core documents for your LLC. It also should be kept confidential from people who are not owners or core members.