Understanding the Key Differences Between Operating Agreements and Articles of Organization

An operating agreement and articles of organization are two essential documents that new business owners must understand when forming a limited liability company (LLC). While both documents are crucial for the formation and operation of an LLC, they serve different purposes and have distinct characteristics. In this article, we will delve into the key differences between operating agreements and articles of organization, helping you make informed decisions for your business.

The articles of organization, also known as the certificate of formation, is a document filed with the state to officially create an LLC. This document outlines the basic information about the company, including the business name, purpose, and registered agent. The articles of organization are a public document, and anyone can access them. On the other hand, the operating agreement is a private document that outlines the ownership, management, and operational structure of the LLC. It is not filed with the state and is only accessible to the LLC members.

One of the primary differences between the two documents is their purpose. The articles of organization are primarily used to establish the LLC's existence and provide basic information about the company. In contrast, the operating agreement is used to outline the internal workings of the LLC, including the roles and responsibilities of the members, the management structure, and the distribution of profits and losses.

Another key difference is the level of detail. The articles of organization are typically brief and to the point, while the operating agreement can be lengthy and detailed. The operating agreement may include provisions for decision-making, dispute resolution, and exit strategies, among other things. The articles of organization, on the other hand, are limited to the basic information required by the state.

When it comes to the formation process, the articles of organization are typically filed with the state before the operating agreement is created. The articles of organization must be filed with the state to officially create the LLC, while the operating agreement is created after the LLC is formed. In some cases, the operating agreement may be created before the LLC is formed, but this is not always the case.

It's worth noting that the operating agreement is not a public document, and it's not filed with the state. This means that the operating agreement is not subject to the same level of scrutiny as the articles of organization. However, the operating agreement is still a crucial document that outlines the internal workings of the LLC, and it can be used as evidence in court if there are any disputes.

In summary, the articles of organization and operating agreement are two distinct documents that serve different purposes. The articles of organization are used to establish the LLC's existence and provide basic information about the company, while the operating agreement outlines the internal workings of the LLC, including the roles and responsibilities of the members, the management structure, and the distribution of profits and losses. By understanding the key differences between these two documents, you can make informed decisions for your business and ensure that your LLC is properly formed and operated.

Key Takeaways:

• The articles of organization are a public document that outlines the basic information about the LLC, while the operating agreement is a private document that outlines the internal workings of the LLC.
• The articles of organization are used to establish the LLC's existence and provide basic information about the company, while the operating agreement outlines the roles and responsibilities of the members, the management structure, and the distribution of profits and losses.
• The operating agreement is not a public document and is not filed with the state, while the articles of organization are a public document and are filed with the state.
• The operating agreement is created after the LLC is formed, while the articles of organization are filed with the state before the LLC is formed.