An ops agreement, short for operating agreement, is a legal document that outlines the internal workings of a limited liability company (LLC). It serves as a contract between the members of the LLC, outlining their rights and responsibilities, as well as the processes for decision-making and governance.
The purpose of an ops agreement is to provide structure and clarity for the LLC`s operation, which helps reduce the risk of conflicts and misunderstandings between members. Without an ops agreement in place, the LLC`s governance would be subject to the default rules set forth by state law, which may not align with the members` interests or needs.
An ops agreement typically covers several key areas, including:
1. Ownership and membership: This section defines the ownership structure of the LLC, including the number and type of membership units, and the rights and responsibilities of members.
2. Management and decision-making: This section outlines how the LLC will be managed, who has decision-making authority, and how disputes will be resolved.
3. Operations: This section covers the day-to-day operations of the LLC, including financial management, accounting, and record-keeping.
4. Dissolution and exit strategies: This section outlines the procedures for dissolving the LLC, as well as the requirements for member withdrawals and transfers.
In addition to providing structure and clarity for the LLC`s operation, an ops agreement can also help protect the members` personal assets. By clearly defining the LLC`s structure and processes, an ops agreement can help demonstrate that the LLC is a distinct legal entity separate from its members. This, in turn, can help protect the members` personal assets from lawsuits or other legal actions taken against the LLC.
When creating an ops agreement, it is important to work with an experienced business attorney who can help ensure that the agreement is legally sound and covers all necessary areas. Additionally, the ops agreement should be reviewed periodically to ensure that it remains up-to-date and relevant to the LLC`s operation.
In conclusion, an ops agreement is a crucial document for any LLC, as it provides structure and clarity for the LLC`s operation, helps reduce the risk of conflicts and misunderstandings between members, and can help protect members` personal assets. If you are starting a new LLC or have not yet created an ops agreement for your existing LLC, it is highly recommended that you consult with a business attorney to get started.