When starting and operating a business, having a solid operating agreement is crucial. This document outlines the rules and regulations of how the company will function and is a crucial tool in preventing confusion and disputes down the line.

However, as with any legal document, an operating agreement is not set in stone. As the needs and dynamics of a business change, so too can the agreements that govern them. There are two types of operating agreements: original and amended.

Original Operating Agreement

The original operating agreement is the initial document that outlines the rules and regulations of the company when it is first formed. This document is typically created during the initial stages of the business formation process and outlines the roles of the company’s members, how profits and losses will be allocated, and how major decisions will be made.

An original operating agreement will typically address the following topics:

– The purpose of the company

– The roles and responsibilities of each member

– The ownership structure of the company

– How profits and losses will be allocated

– How disputes will be resolved

– How the company will be managed

– How member contributions will be made

– How and when the company can be dissolved

Amended Operating Agreement

An amended operating agreement, on the other hand, is a document that is created after the initial operating agreement has been established. This document is used to modify, add, or remove any clauses or points that have been agreed upon by the members of the company.

There are several reasons why an amended operating agreement may be necessary, including:

– Change in ownership: If a new member joins the company or if a current member leaves, the operating agreement will need to be amended to reflect the change in ownership structure.

– Change in management: If the company decides to change the way it is managed or if new managers are appointed, the operating agreement will need to be updated to reflect these changes.

– Change in voting structure: If the members of the company decide to change the way major decisions are made, the operating agreement will need to be updated to reflect this change.

– Change in profit and loss allocation: If the members of the company decide to change the way profits and losses are allocated, the operating agreement will need to be updated to reflect this change.

– Change in company purpose: If the company decides to change its purpose or add new business lines, the operating agreement will need to be updated to reflect this.

In order to amend an operating agreement, all members of the company must agree to the changes. Once the amended operating agreement has been created and signed by all members, it becomes the new governing document for the company.

Conclusion

Operating agreements are an essential tool for any business and should be created with care and attention to detail. While an original operating agreement sets the foundation for the company’s rules and regulations, amended operating agreements allow the company to adapt and change as needed. By understanding the differences between original and amended operating agreements, business owners can ensure that their company stays on solid legal footing.