What Is the Difference between Bylaws and Operating Agreement

As a business owner, it is important to understand the legal documents that govern your company. Two of the most important documents are the bylaws and operating agreement. While they may seem similar, there are distinct differences between the two.

Bylaws

Bylaws are a set of rules and regulations that govern the operation of a corporation. They outline how the company will be run, including the roles and responsibilities of the directors and officers, how meetings will be conducted, and the process for making decisions.

Bylaws are typically adopted at the first meeting of the board of directors and can be amended as needed. They must be consistent with state law and the company`s articles of incorporation.

Bylaws are an important legal document for corporations because they provide a framework for the company`s operation and can help prevent disputes between directors, officers, and shareholders. They are also important for compliance with state law and regulatory agencies.

Operating Agreement

An operating agreement is a legal document that outlines the structure and operation of a limited liability company (LLC). It is similar to the bylaws of a corporation, but it is specific to an LLC.

The operating agreement outlines the management structure of the LLC, including the roles and responsibilities of the members, managers, and officers. It also outlines the decision-making process of the LLC, including how profits and losses will be distributed among members.

An operating agreement is not required by law in all states, but it is highly recommended. Even if it is not required, it is a good idea to have an operating agreement in place to prevent disputes and clearly define the rights and responsibilities of members.

Differences between Bylaws and Operating Agreement

The main difference between bylaws and an operating agreement is the type of entity they govern. Bylaws are for corporations, while operating agreements are for LLCs.

Another difference is that bylaws are required by law for corporations, while operating agreements are not required by law for LLCs in all states.

Bylaws usually focus on the governance of the corporation, while operating agreements focus on the management and operation of the LLC.

Conclusion

Bylaws and operating agreements are both important legal documents that govern the operation of a corporation or LLC. While they have some similarities, they are distinct documents that serve different purposes. As a business owner, it is important to understand these documents and ensure they are in place to protect your company and prevent disputes.