When starting a business, there are a lot of legal documents that need to be drafted and agreed upon by all parties involved. Two of the most important documents that any business owner should consider are the operating agreement and the bylaws.

While they may seem similar, there are some key differences between these two documents that can have a big impact on how your business operates.

Operating Agreement

An operating agreement is a legal document that outlines how a limited liability company (LLC) will be run. It typically includes information about the structure of the LLC, the rights and responsibilities of each member, how profits will be distributed, and how decisions will be made.

One of the main benefits of having an operating agreement is that it can help protect your personal assets in the event that your business is sued. By clearly outlining the responsibilities of each member, you can help ensure that your personal finances are not at risk.

In addition, having an operating agreement can help prevent disputes between members by establishing clear guidelines for how decisions will be made and how profits will be distributed.

Bylaws

Bylaws, on the other hand, are a set of rules and regulations that govern how a corporation will operate. They typically outline the roles and responsibilities of the board of directors, how shareholder meetings will be conducted, and how amendments to the bylaws can be made.

Unlike an operating agreement, bylaws are not required by law. However, they can be a valuable tool for ensuring that everyone involved in the corporation is on the same page and working toward the same goals.

One of the main benefits of having bylaws is that they can help ensure that the corporation is run in a transparent and consistent manner. They can also help prevent disputes between shareholders by clearly outlining the rights and responsibilities of each party.

Choosing the Right Document for Your Business

When deciding whether to draft an operating agreement or bylaws, it`s important to consider the type of business you are starting and the goals you hope to achieve.

If you are starting an LLC, an operating agreement is a must-have document. It can help protect your personal assets, prevent disputes between members, and ensure that your business is run in a consistent and transparent manner.

If you are starting a corporation, bylaws may be a valuable tool for ensuring that everyone involved in the corporation is on the same page. They can help prevent disputes between shareholders and ensure that the corporation is run in a transparent and consistent manner.

In either case, it`s important to consult with a lawyer experienced in drafting these types of legal documents to ensure that your operating agreement or bylaws are tailored to your specific business needs and comply with all applicable laws and regulations.