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What Should Be Covered in a Business Operating Agreement? Part 1

Attorney L. Reed Bloodworth frequently represents business partners who are deep in legal battles where the main problem is the lack of a business operating agreement.

What Should Be Covered in a Business Partnership Agreement?

Part 1: Type of Organization

Reed discusses what should be covered in a business partnership agreement or an operating agreement? This is Part 1 in a series: Type of Organization.

Reed said he sees partnerships where there isn’t a written agreement, there isn’t something set forth to say this is how we’re going to handle a breakup of the partnership, the liabilities. 

Typically the biggest problem when partnership disputes occur, it’s clear by their actions that they were a partnership, but they never created a formal written agreement.

Then, one day, one of the partners locks the other partner out of the business, changes all the computer passcodes, and clears out all the bank accounts. And then it’s a lawsuit between the partners about who gets what.

Easy to Form, Difficult to Run Businesses

Reed explains that while partnerships are less technical, businesses need to plan while they’re forming. It’s easy to form a partnership, an LLC, or a corporation, but it’s very difficult to run the business.

What is an Operating Agreement?

What is an operating agreement? An operating agreement puts in writing for all members of a business the rules, the roles, the goals, and legal direction governing the business.

By forming an operating agreement members go through all of the details of what the purpose of the entity is, who are the members of the entity, who does what.

Partnerships typically don’t offer liability protection as an LLC or a corporation would provide. In partnerships, individuals are still technically individuals. When you think of it in terms of a lawsuit, they can bind each other for liability purposes.

Protection From Liability

Liability can come in up in many forms, for example, a car crash. In a partnership, if a partner is doing company business and rear ends someone while using a car owned by the partnership, the liability can spread to the other partners.

Whereas an LLC or a corporation protects the other people involved. That’s one of the many benefits of forming the LLC or forming the corporation.

If you’re going to form an LLC, a partnership, a corporation, and run it properly, invest upfront and consult with a business attorney about how to run the business and protect those involved.

No matter what stage of the business dispute you’re facing, talk with Reed about how Bloodworth Law can help you, your family, or your business.

Florida attorney L. Reed Bloodworth is the managing partner of Bloodworth Law with offices in Orlando and Winter Haven.

Reed has handled business litigation since 2004 and has seen businesses and business partners try to navigate and then litigate disruptive and sometimes hostile legal disputes.

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