Operating Agreement vs Articles of Incorporation: What's the Difference?

An operating agreement and articles of incorporation are two essential documents that new business owners must understand. While they serve different purposes, they are often confused with each other. In this article, we'll break down the key differences between an operating agreement and articles of incorporation, helping you make informed decisions for your business.

An operating agreement is a contract between the owners of a limited liability company (LLC) that outlines the ownership structure, management, and operational procedures of the business. It's a private document that's not filed with the state, but it's essential for resolving disputes and ensuring that all owners are on the same page.

On the other hand, articles of incorporation, also known as a certificate of incorporation, is a public document that's filed with the state to establish a corporation. It outlines the corporation's name, purpose, and structure, and it's a requirement for obtaining a business license and opening a corporate bank account.

Key differences between an operating agreement and articles of incorporation include:

• Purpose: An operating agreement outlines the internal workings of an LLC, while articles of incorporation establish a corporation's existence and structure.
• Public vs. Private: Articles of incorporation are public documents, while operating agreements are private contracts.
• State Filing: Articles of incorporation are filed with the state, while operating agreements are not.
• Business Structure: An operating agreement is used for LLCs, while articles of incorporation are used for corporations.

When deciding between an operating agreement and articles of incorporation, consider the following factors:

• Business Structure: If you're forming a corporation, you'll need to file articles of incorporation. If you're forming an LLC, you'll need an operating agreement.
• State Requirements: Check with your state's business registration office to see if there are any specific requirements for articles of incorporation or operating agreements.
• Business Needs: Consider your business's specific needs and goals. If you need to raise capital or attract investors, a corporation may be a better choice. If you want to maintain flexibility and control, an LLC may be a better fit.

In conclusion, while an operating agreement and articles of incorporation serve different purposes, they're both essential documents for new business owners. By understanding the key differences between these two documents, you can make informed decisions for your business and set yourself up for success.