What is an Operating Agreement?

Businessmen signing a contractAn operating agreement is a contract that outlines how a Professional Limited Liability Company (PLLC) will function from its inception. It can diffuse potential disputes between members if the agreement addresses certain areas of concern for the PLLC.  

For example, it may discuss the following areas:

  • Operation of the PLLC (who will manage; where it’s located; what are its functions);
  • Protocol for additional members;
  • Removal of members;
  • Withdrawal of members;
  • Sharing and splitting of profits/losses;
  • Percentage of ownership and voting rights for members; and
  • Dissolution of PLLC. 

If the operating agreement does not have particular language or excludes certain information, an issue may emerge down the road for the members. For example, if the PLLC has multiple members and does not have processes in place to remove an unwanted member, then the PLLC may need to be dissolved and reinitiated in order to remove that one member. 

Typically, the most significant aspects of the operating agreement deal with processes that either grow or stall the company, i.e. management, voting, withdrawal or removal of members, and how new members may be able to join. 

Specific Roles

Often PLLCs are formed with two or more professionals who each take on a different role to assist the PLLC to grow and profit. The operating agreement may reflect this in order to avoid confusion and overlap. If there is a change in roles or how the PLLC is conducted, the operating agreement may be amended, as long as it is in writing and agreed to by the members.

Updates and Changes

Businesses are often in flux. The operating agreement should be reviewed and updated, especially when a significant change occurs in the organization (induction of a new member) or the internal operation (change of management). Throughout the course of the PLLC’s existence, the members should schedule annual meetings to review the agreement with their attorney and make any necessary changes, if applicable. If an event is on the horizon (i.e. a member retirement), the members should plan for at least six month’s lead time to speak to counsel to ensure that there are no issues moving forward.

Stephanie J. Rodin, Esq.Stephanie J. Rodin, Esq.
Rodin Legal, P.C.
Email: info@rodinlegal.com
Tel: (917) 345-8972
Fax: (917) 591-4428

This entry was posted in Dental Practices, Medical Practices, Partnership/Operating Agreements and tagged , , , , , . Bookmark the permalink.

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