The OA’s full form in law is an Operating Agreement. The operating agreement is basically a legal document that is agreed to when any individual establishes an LLC (Limited Liability Company). The operating agreement articulates the management, structure, operating procedures, and decision-making process for the Limited Liability Company (LLC). The OA is irreplaceable in presenting how a Limited Liability Company (LLC) is developed, and how it operates and performs certain tasks. Fundamentally, the Operating Agreement (OA) is a type of contract; once it is signed, the members of the Limited Liability Company (LLC) are restricted to its terms and conditions.
What is included in OA?
The Operating agreements describe the financial and operational provisions and rules of a Limited Liability company. In other words, it is a how-to guideline for how the businesses need to be managed and operated. Particularly, any operating agreement must include the following:
- Duties and benefits of the members
- The process of admission of new members
- Right to vote
- Sellout and Buyout processes – the transition of the ownership
- Tax rulings
- Provision for transfer
- Duties and powers of members and managers
- Information regarding meetings of board members
- Profits and losses distribution.