Certain types of corporate structures are required to draft legal documents that provide information about the company, such as its purpose and how it will operate. For a corporation, this legal document is the articles of incorporation. For a limited liability company (LLC), it is an operating agreement. These two documents have similarities and differences as to how each is utilized by its respective business structure.
Articles of incorporation will legally establish a business as a corporation in the state where it operates. These articles define the corporation’s owners, business activities, and the issuance of shares. An operating agreement is for a limited liability company, and it describes how the LLC and its members will carry out their business obligations through a set of rules.
Articles of incorporation are a legal requirement that must be met by corporations. They serve as the public record that identifies a particular company. Legally binding, an operating agreement will be used to help settle legal matters in the event they arise between LLC members. Its provisions will be respected by the courts and permit the owners to make formal decisions regarding their company.
Share similarities in form and function, articles of incorporation and operating agreements provide information, such as its name, purpose, and operation. Both also define a company’s management and ownership.
By law, a corporation is required to file its articles of incorporation with a secretary of state. The articles will establish the business as a separate entity from the owners. In contrast, LLCs do not always have to draft and file an operating agreement with a secretary of state. States differ in the legal filing requirements of their respective LLCs. Moreover, operating agreements have comprehensive descriptions of voting rights, management, and the allocations for profit and loss. In contrast, such details are contained in corporate bylaws, rather than the articles of incorporation.
Inaccurate or missing information in a company’s articles of incorporation or operating agreement may be seriously detrimental to its operation or result in legal problems. The improper filing of the articles of incorporation may cause rejection by a secretary of state. A flawed operating agreement may result in conflicts between the members of an LLC. If it lacks a provision regarding the resolution of disagreements, LLC owners may have no choice but to file a lawsuit, which would be far more costly.
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The Law Office of Edward Lai can assist you with your company’s legal matters. If you would like to have a consultation, please contact their office through this website or call (510) 397-8287.