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Why a Massachusetts business needs an operating agreement

On Behalf of | Aug 6, 2020 | Entrepreneurial Law |

When business associates come together to discuss starting a new enterprise, their conversations may be focused on big picture planning and their short and long-term goals. The possibilities of a new business are truly endless, and it can be easy for entrepreneurs to get caught up in the excitement of what they can do with their fledgling entity. However, before their business is off the ground, they should create a strong operating agreement.

The Massachusetts law

Under Massachusetts law, operating agreements can provide significant information on the way businesses are established and run. New businesses can create operating agreements that meet their needs, and during the planning process business entrepreneurs can talk to business law attorneys about how best to draft these important legal tools. Attorneys are a good source of information, and readers should be aware that this post offers no legal advice.

There are many terms that business entrepreneurs can include in their operating agreements, but some of the most common terms include:

  • The names of the business’s owners and how much of the business each of the owners possesses.
  • The manner in which business owners can vote on business matters.
  • The ways that business owners can sell their interests, and the ways that prospective owners can buy into the entity.
  • The plan for how the business will be run from an operational perspective.

Other terms that might be relevant to operating agreements can include, but are not limited to rules for how the meetings between owners will run, the responsibilities of the owners, and financial information on profits and losses.

What are operating agreements?

Operating agreements are technical documents that provide security for business owners in several important ways. For example, the existence of a business governed by an operating agreement can help separate an owner’s personal assets from business-related liabilities. It can also help mitigate and resolve conflicts that exist between business owners by establishing the rules of how those parties can and should interact.

Put simply, an operating agreement is the rulebook by which a business will be run and the owners will abide. It provides consistency in business operations and sets expectations for those who choose to support and invest in the success of the enterprise. As it is a legal document, it is important that an operating agreement conforms to the regulations of contracts in Massachusetts. Before entering into an operating agreement or other business-based contract, a business entrepreneur may wish to talk to an attorney. A legal professional with business law knowledge can answer an entrepreneur’s questions and help remedy contractual problems before an operating agreement is signed.