When starting a business, there are many legal documents that need to be filed and understood. Two of these documents are the operating agreement and the articles of incorporation. While both of these documents are important for the formation of a business, they serve different purposes and are not the same.
Articles of Incorporation
The articles of incorporation are a legal document that is filed with the state when a company wants to become a corporation. This document outlines the company’s purpose, structure, and ownership. It also includes the company’s name, address, and the number and type of shares of stock that will be issued.
The purpose of the articles of incorporation is to establish the legal existence of the company and to provide a framework for how it will operate. It also defines the rights and responsibilities of the company’s shareholders.
An operating agreement, on the other hand, is a legal document that outlines the internal operations and management of a business. This document is typically used for limited liability companies (LLCs).
The operating agreement lays out the structure and ownership of the LLC, as well as the duties and responsibilities of the members. It also addresses how profits and losses will be distributed and what happens in the case of a member’s departure or death.
The purpose of an operating agreement is to establish the rules and regulations that govern the internal operations of the business. This document is crucial because it ensures that all members are on the same page and that the business is operating in a legal and ethical manner.
The Differences Between the Two
While both the operating agreement and articles of incorporation are important legal documents, they serve very different purposes. The articles of incorporation establish the legal existence of the corporation and outline its purpose and structure. The operating agreement, on the other hand, addresses the internal operations and management of a business.
Furthermore, the articles of incorporation are filed with the state, while the operating agreement is an internal document that is not typically required to be filed. Additionally, the articles of incorporation are required for corporations, while an operating agreement is only required for LLCs.
In summary, the operating agreement and articles of incorporation are not the same documents. While both are important for the formation and management of a business, they address different aspects of the business and serve different purposes. Understanding the differences between the two is crucial for ensuring that your business is operating in a legal and ethical manner.