Understanding the Difference Between Operating Agreements and Articles of Organization

An operating agreement and articles of organization are two distinct documents that serve different purposes for businesses. While both are essential for the formation and operation of a company, they have unique characteristics and requirements. In this article, we'll delve into the differences between operating agreements and articles of organization, helping you understand which one is right for your business. **What are Articles of Organization?** Articles of organization, also known as a certificate of formation, are the documents filed with the state to officially create a business entity. This document outlines the basic information about the company, including its name, address, purpose, and management structure. Articles of organization are typically filed with the state's business registration office and serve as public notice of the company's existence. **What is an Operating Agreement?** An operating agreement, also known as a partnership agreement or LLC operating agreement, is a private document that outlines the ownership, management, and operational structure of a business. This agreement is typically created by the business owners and outlines the rules and procedures for decision-making, profit distribution, and other essential aspects of the business. An operating agreement is not filed with the state and is only binding on the parties who sign it. **Key Differences Between Operating Agreements and Articles of Organization** 1. **Purpose**: Articles of organization are filed with the state to create a business entity, while an operating agreement outlines the internal rules and procedures for the business. 2. **Public vs. Private**: Articles of organization are public documents, while an operating agreement is a private document. 3. **State Filing**: Articles of organization are filed with the state, while an operating agreement is not. 4. **Binding**: Articles of organization are binding on the state and the public, while an operating agreement is only binding on the parties who sign it. 5. **Content**: Articles of organization contain basic information about the company, while an operating agreement outlines the internal structure and procedures of the business. **When to Use Each Document** Articles of organization are typically used when forming a new business entity, such as a corporation, limited liability company (LLC), or partnership. An operating agreement is used when creating a business entity that requires a more detailed internal structure, such as an LLC or partnership. **Conclusion** In conclusion, while both operating agreements and articles of organization are essential documents for businesses, they serve different purposes and have unique characteristics. Understanding the differences between these two documents will help you create the right structure for your business and ensure compliance with state regulations. **PostSummary**: Understand the difference between operating agreements and articles of organization to create the right structure for your business.