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  • Writer's pictureTanya S Osensky

A Recipe for Success: Get an Operating Agreement

Picture this:

Penny and Irene, two talented chefs, had a brilliant idea to open a fancy restaurant and bar in the posh part of town. But they didn't have enough money to make it happen on their own, so they teamed up with three deep-pocketed investors. The five of them formed an LLC (limited liability company) and became equal owners of the business.

Sounds like a good plan, right?

But there's a catch. They forgot to put in place an LLC Operating Agreement. The agreement isn’t legally required but is important and can save a lot of trouble later.

What it does is establishes everyone's rights and obligations to each other and to the business. It covers things like what happens if one of them dies or becomes disabled, to what to do if they decide to leave the business, or even disagree with each other. It's like an insurance policy for your business.

Now, fast forward a bit and the restaurant is a massive success. Everyone's making money hand over fist, but they still don't have an Operating Agreement. Just one unexpected event could cause chaos.

You see, in business, like in real life, change is always just around the corner. One of the owners might die, decide to retire, get married or divorced, receive a better offer, or want to sell their share. All of these events could significantly impact not just the owner but also the other owners. This is where a good Operating Agreement comes in handy. It anticipates potential changes and provides a framework for dealing with them.

So, the moral of the story - if you're starting a business with partners, always make sure to have an Operating Agreement in place. It might not seem essential at the beginning, but it could save you a ton of headaches and disputes down the road.

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