Articles of Organization vs Operating Agreement
When starting a business with a friend, you don’t know what to do. Should you incorporate it – What if you don’t have enough money in your bank account to start the business?
These are some questions that may be running through your head right now.
- First, create an Articles of Organization LLC. This is a document that protects businesses from lawsuits in case something happens during their operations.
It also helps keep personal assets separate from company assets so that if anything goes wrong with your business, it won’t affect your personal life.
Creating an AOO is simple and straightforward: fill out some paperwork at your state’s Secretary Of State office and then pay $50-$150 depending on how many people own shares of stock in your company.
Facts about Articles of Organization of LLC
The first legal document is the Articles of Organization.t business files with the state they want to incorporate. It establishes the name of your business, how many authorized shares you wish to sell, and other essential information about your LLC.
Articles of Organization contain some essential information about the company that includes:
- Name of the company
- Purpose or nature of business
- A registered agent will receive notices on behalf of the corporation if it gets sued or has legal issues. The registered agent also acts as a liaison between members and officers so they can communicate effectively with one another.
Facts about Operating Agreement for single member LLC
The Operating Agreement is a written agreement between the members of a limited liability company. It can be oral or written, but it must be distinct from the Articles of Organization.
There is no statutory requirement for the Operating Agreement in most states, but it is highly recommended because it outlines how your LLC will operate and protect you in case of legal disputes.
The following are some general topics that all LLC operating agreements should address: The nature of your business.
- Responsibilities and rights of each member
- Voting rights and procedures, Capital contributions, Distribution of profits & income
When starting a business, many terms get thrown around, and one of the most confusing aspects is the difference between the Articles of Organization and Operating Agreements.
The first thing to understand is that these two documents serve different purposes. An Articles of Organization is filed in your state and provides basic information about your company, such as who’s running it and where you’ll be located.
An Operating Agreement goes into more detail about how decisions will be made within your company and give you some liability protection if someone sues you personally for something related to work activities.
Suppose you’re considering opening a small business. In that case, we recommend registering with both types of filings because they do very different things for different reasons, which we’ll explain below:
Conclusion
Operating Agreements and the Articles of Organization are both essential documents for startups. They serve different purposes, however, so you should understand the differences.
Articles of Organization: This document is kept on file with the file of the state’s Secretary of State office and serves as an official registration for your business entity. You will require one if you intend to incorporate or form a nonprofit organization.
Operating Agreement: This agreement is a binding contract between members or managers in a business partnership. It outlines how each person will be compensated for their work and rights within the company.