So you’ve decided to launch and run your own business—congratulations! But before you pop the champagne and throw open your doors, it’s important to create a document that will serve as a list of rules by which your business will run. But before you break out your laptop and start typing, you should know the difference between an operating agreement vs. partnership agreement, and why it could be key to your business’ success.
Why is it important to have this kind of document? Because it ensures everyone under your employ is on the same page, and it gives your business a firm foundation to grow from. Plus, if your business includes working with outside contractors or additional partners, this kind of documentation can ensure they’re also aware of the guidelines that govern your business, and how their work can mesh with your overall approach and needs.
But what is this document? Well, it depends on what kind of business you have and how you’re running it, but in general, what you ultimately want to create is either an operating agreement or a partnership agreement. Both of these documents are important to help you run your business seamlessly, but they serve different purposes. So before you decide whether you need an operating agreement vs. partnership agreement, let’s look at what both of these agreements are, what they do, and how they help you run your business.
An operating agreement is a legal document that details how a company or business will be managed and operated—hence the name. Think of it as a contract that breaks down everything anyone would want to know about how to run the business including how income is distributed, how operations are handled, the roles and responsibilities of each of the company’s management team, and how profits and shares are distributed.
Some of the other things an operating agreement outlines include:
When it comes to the difference between an operating agreement vs. partnership agreement, an operating agreement is similar to a partnership agreement in the way that it details the nuts and bolts of how a company is run, but it’s meant more for companies that are larger in scale with stakeholders, managers, and more intensive operational needs. If you’re running a business that’s just you and a buddy, you may prefer to opt for a partnership agreement.
Much like an operating agreement, a partnership agreement is a legal document that—you guessed it—details how your company or business will be managed and operated. But there’s a twist: this kind of agreement is better in situations where you’re running a business and looking to add a new partner, or you and your friend are joining up to create a business together.A partnership agreement can help you determine a lot of necessities that surround your business, like percentages of ownership and investments, names and locations, who makes financial decisions and how profits and losses are shared, the focus of the business, the length of the partnership, and the terms of dissolution.
Some of the other things a partnership agreement outlines include:
Even though a partnership agreement is similar to an operating agreement, it’s more tailored to a smaller venture that exists between two people, rather than a larger company with stakeholders, managers and other operational personnel. If your company expands, you may need an operating agreement down the road. But in the beginning, when it’s just a couple people banding together to turn a business dream into reality, a partnership agreement is a good way to start your business off on the right foot.
Absolutely. Whether it’s you and your bestie venturing out into your first business, or you’ve purchased an LLC that comes with a board, it’s important to have some kind of agreement in place that documents the rules and regulations associated with the business.
Not only does it ensure everything runs smoothly on an operational level, but it also prepares you in the event that something unexpected happens—say, if a partner passes away, someone wants to buy someone else’s stake in the business, or even when the business grows rapidly, or fails. Having a legal contract can help layout the terms of your business plainly and clearly for all involved—and offer protections, too.
Are you ready to create an operating agreement or partnership agreement? LegalShield can help you. Don’t attempt to create an operating or partnership agreement on your own—get support from a partnering lawyer who can make the process easier and more efficient. A legal plan from LegalShield provides access to experienced business lawyers at an affordable price. Sign up today!
This guide walks you through 11 categories of legal issues and how lawyers can help. Many of these issues are covered by a LegalShield® Plan, so talk to a provider law firm about your specific situation.
Depending on the type of document, electronic signatures are legally binding in the United States, Canada, and many other foreign countries. They allow you to sign documents on a smartphone or computer and are usually as acceptable as “wet” signatures made with ink on paper.
Grandparent custody issues are complicated, so it’s important to seek help early on. With the right support, you can learn about the different types of child custody and how to apply for them formally.
Ticket fraud is surging this summer. Learn where to buy safely, what your legal rights are, and how to get help if something goes wrong.
In most states, to get a divorce: At least one spouse has to be a resident of the state where the divorce is filed. One spouse must file a petition for divorce stating the reason for the divorce. A judge will sign a written court order (also referred to as a divorce decree) granting the divorce.
