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Is your operating agreement operational?

There’s a big issue out there these days. I’ve seen many companies that do not have or do not have an updated operating agreement.

The big question is, do you even know what an operating agreement is?

An operating agreement is the document that states how a company is to be run. It states who can open bank accounts, who can buy assets, who are the partners, how are they treated, who owns what percentage, how about of the partners would happen, who can buy or sell shares of stock, and many many more topics. Basically an operating agreement is a prenuptial for any business partnership.

You have to think about it this way, if you were about to get married to someone brand-new, that you’d only really met recently, and you knew a little bit about their history but not much, would you jump into a marriage right away?  For many people, maybe excluding the stars in Hollywood, this answer is no. The same answer should be in your business. Without an operating agreement that clearly states how the business is to be run, and what rules the partners will follow in case of a disagreement about any topic, you should not get into business.

I have seen the case many times where to partners who have been best friends for the past several years decide that they’re going to go into business together. Partner A is the cash partner and partner B is the working partner.  For the first few months partner A and partner B are getting along swimmingly, until of course partner B, who isn’t getting a salary, decides he needs the money to pay some personal bills.  This tends to be when all hell breaks loose. Partner B decides to take some cash out of the till without consulting partner A and when partner A finds out now we have an issue.

Don’t let this become you and your friends ( even though I know it sounds like a Sunday afternoon special) – please do was make sure that you have an operating agreement in place and signs in front of witnesses before you start your business!

Always looking out for your side,

Shauna Wekherlien, your Tax Goddess

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