If you`re starting a business, you may be wondering about the difference between an operating agreement and an LLC (Limited Liability Company). While both are important legal documents that govern the operations of a business, they serve different purposes.
An operating agreement is a legal document that outlines the rules and regulations for how a business will be run. It is typically used by LLCs, but can also be used by partnerships and corporations. The purpose of an operating agreement is to establish the rights and responsibilities of each member or owner, and to provide guidance on how the business will be managed and operated.
On the other hand, an LLC is a legal structure that provides personal liability protection to its owners. This means that the business`s debts and liabilities are separate from the personal assets of the owners. LLCs are popular because of the flexibility they offer in terms of management and taxation. LLC owners are called members, and they can choose to be taxed as either a sole proprietorship, partnership, S corporation, or C corporation.
So, what`s the difference between an operating agreement and an LLC? The answer is simple – an operating agreement is a document that outlines how a business will be run, while an LLC is a legal structure that provides limited liability protection to its owners.
However, it`s important to note that having an operating agreement is crucial if you have an LLC. While an LLC provides personal liability protection, it does not necessarily outline the rules and regulations for how the business will be run. Without an operating agreement, disputes and conflicts between owners can arise, leading to costly legal battles that could have been avoided with a well-drafted agreement.
In conclusion, both an operating agreement and an LLC are important for any business, but they serve different purposes. An operating agreement is a document that outlines how the business will be run, while an LLC is a legal structure that provides personal liability protection to its owners. If you have an LLC, it`s crucial to have an operating agreement to avoid disputes and conflicts down the line.