Understanding the Difference Between Operating Agreements and Articles of Organization

An operating agreement and articles of organization are two crucial documents for a limited liability company (LLC). While they are often used together, they serve distinct purposes and have different content. In this article, we will delve into the differences between these two essential documents and provide guidance on when to use each.

Articles of organization, also known as a certificate of formation, are filed with the state to officially create an LLC. This document outlines the basic information about the company, including its name, address, purpose, and management structure. It is a public document that is available for anyone to access.

An operating agreement, on the other hand, is a private document that outlines the internal workings of the LLC. It defines the rights and responsibilities of the members, including their roles, responsibilities, and profit-sharing ratios. It also outlines the decision-making process, capital contributions, and distribution of assets in the event of dissolution.

While both documents are essential for an LLC, they are not the same. The articles of organization are a public document that is filed with the state, whereas the operating agreement is a private document that is used internally by the company. The articles of organization provide basic information about the company, whereas the operating agreement outlines the internal workings and rules of the company.

Key differences between operating agreements and articles of organization include:

• Public vs. Private: Articles of organization are a public document, while an operating agreement is a private document.
• Purpose: Articles of organization provide basic information about the company, while an operating agreement outlines the internal workings and rules of the company.
• Content: Articles of organization typically include the company name, address, purpose, and management structure, while an operating agreement defines the rights and responsibilities of the members, outlines the decision-making process, and provides rules for capital contributions and asset distribution.

When to use each document:

• Articles of organization: When creating a new LLC, you need to file articles of organization with the state to officially create the company. This document provides basic information about the company and is a public document.
• Operating agreement: When establishing the internal workings and rules of the LLC, you need to create an operating agreement. This document outlines the rights and responsibilities of the members, outlines the decision-making process, and provides rules for capital contributions and asset distribution.

Conclusion:

In conclusion, while both operating agreements and articles of organization are essential documents for an LLC, they serve distinct purposes and have different content. The articles of organization are a public document that provides basic information about the company, whereas the operating agreement is a private document that outlines the internal workings and rules of the company. By understanding the differences between these two documents, you can ensure that your LLC is properly established and operates smoothly.

Recommended reading:

For more information on LLCs and the documents required to establish one, check out our article on LLC Formation Guide.