Company and Operating Agreements

As a business owner, it’s important you implement clear guidelines and governing how your company operates. Depending on your entity structure, the official documents that lay out these guidelines are generally a company agreement or operating agreement. Essentially, this document is a “rulebook” directing those who own an interest in and/or are in involved in running the business.

So why exactly do you need a company or operating agreement? Primarily because the agreement outlines the financial and functional decisions of a business, as well as other rules and regulations. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners, setting out the financial and working relations among the business owners and between the owners and those actually running the company.

Company and operating agreements vary greatly depending on the needs of the business, but will generally cover items related to the following:

• How much say each owner has in the company, or voting power;
• Profit distribution and how payments are made to shareholders or members;
• How profits and losses are allocated;
• What happens if the business has to be dissolved or liquidated; and
• How an ownership interest can be sold or transferred.