When forming a limited liability company (LLC), it is necessary to file certain documents with the state. Two of the most important documents that need to be filed are the operating agreement and the articles of organization. Though both are necessary for the formation of an LLC, they are two very different documents.
In this article, we’ll take a closer look at the differences between an operating agreement and articles of organization.
What are Articles of Organization?
Articles of organization refer to a legal document that is filed with the state when forming an LLC. This document outlines the basic information about the LLC, including its name, address, the purpose of the LLC, the name and address of the registered agent and the names of the members of the LLC.
Articles of organization are crucial for establishing the existence of the LLC and are considered a charter for the business.
What is an Operating Agreement?
An operating agreement, on the other hand, is a legal document that outlines the internal workings of the LLC, such as the roles and responsibilities of members, management structure, voting rights, and profit sharing. This document is only applicable to multi-member LLCs, as they are unique in that they are owned and managed by the members themselves.
An operating agreement is not required by law, but it is recommended that one be created as it provides a clear understanding of the business’s internal operations and helps prevent misunderstandings between members.
The Differences Between Articles of Organization and Operating Agreements
While both documents are crucial for the formation of an LLC, they serve very different purposes.
Articles of organization are a legal requirement and must be filed with the state to establish the business’s legal existence. On the other hand, operating agreements are not mandatory and serve as a comprehensive guide for the LLC’s internal operations.
Another key difference is that the articles of organization are a matter of public record, available for anyone to view. Operating agreements, however, are not a matter of public record and are kept within the LLC.
Lastly, articles of organization are fairly standard across all states, with minor differences depending on the state. Operating agreements, on the other hand, can greatly differ depending on the unique operations of each LLC.
While both an operating agreement and articles of organization are necessary for the formation of an LLC, they serve very different purposes. Articles of organization establish the existence of the LLC while operating agreements serve as a comprehensive guide to the business’s internal operations. Remember, it is essential to file articles of organization with the state, but it is highly recommended to create an operating agreement for multi-member LLCs.