What Is the Difference between an Operating Agreement and Articles of Incorporation

If you are starting a new business, it is important for you to understand the different legal documents required for the formation and operation of your business. Two of the most important documents that are necessary for setting up and operating a business are the operating agreement and the articles of incorporation. While these two documents are essential, they serve different purposes. In this article, we explore the differences between an operating agreement and articles of incorporation.

An operating agreement is a legal document that serves as a binding agreement between the members of a limited liability company (LLC). It outlines how the company will be managed, how profits and losses will be distributed, and how disputes will be settled. In essence, an operating agreement is the blueprint for how a business will be run. It is important to note that an operating agreement is only required for LLCs. In contrast, corporations do not require an operating agreement and instead are required to have bylaws.

Articles of incorporation, on the other hand, are legal documents that are filed with the state’s secretary of state or corporations division when a corporation is being formed. This document outlines the company`s purpose, its registered agent, its board of directors, and its stock structure. Essentially, it establishes the corporation as a legal entity. The articles of incorporation also set up the legal framework for the corporation, including its bylaws, which govern how the corporation will operate.

In summary, the major difference between an operating agreement and articles of incorporation is that an operating agreement is required for LLCs, while articles of incorporation are required for corporations. An operating agreement is a legal document that outlines the management structure and operations of an LLC, while articles of incorporation establish a corporation as a legal entity. While both documents serve different purposes, they are essential to ensure that a business operates legally and efficiently.

In conclusion, it is important to have a clear understanding of the legal documents required when starting and operating a business. An operating agreement and articles of incorporation are two of the most important documents that are necessary to ensure the smooth running of a business. By knowing the difference between these two documents, business owners can ensure that their business operations are set up correctly and legally compliant.