An LLC is a business that combines the flexibility of a partnership with the limited liability protection of a corporation. Due to the fact that LLCs are regarded as distinct legal persons from their owners, both the firm and its owners may bring and defend legal actions. Furthermore, LLCs are pass-through entities, which means that their profits and losses are transferred to the individual tax returns of their owners.
On the other hand, licensed professionals like accountants, attorneys, and physicians can create professional corporations (PCs), which are business entities. PCs offer the same level of liability protection as LLCs, but they have a different operating model. Since state legislation, such as the state’s board of accountancy, lawyer association, or medical board, regulates PC rules and regulations, they often do not have Operating Agreements.
Bylaws and an Operating Agreement are not the same thing. A corporation’s internal policies are described in its bylaws, but an LLC’s management and ownership structure is described in its operating agreement. Corporations generally employ bylaws to regulate the meetings of their board of directors and other corporate formalities. On the other hand, LLCs use operating agreements to specify the positions and obligations of the members and managers, as well as their voting rights, profit-sharing arrangements, and management structure.
An LLC must have operating documents in order to be formed and run legally. These records contain the Operating Agreement and the Articles of Organization, which are submitted to the state to formally establish the LLC. Operating Agreements are strongly advised even if they are not legally needed in the majority of states. State-to-state variations in operating agreements are possible, although they usually address the same fundamental topics such the purpose of the LLC, its management structure, voting rights, capital contributions, and profit sharing.
In order to prevent misunderstandings and conflicts amongst members, Operating Agreements are crucial for any LLC. Even while Operating Agreements can differ from one state to the next, they usually include the same key themes. Since state law governs PC laws and regulations, operating agreements are often not present. Bylaws, which are distinct from Operating Agreements, are frequently employed by corporations to regulate board meetings and other corporate formalities.