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Should you include an operating agreement in your Arizona LLC?

On Behalf of | Dec 28, 2023 | Business Law |

Generally, Arizona laws do not require limited liability companies (LLCs) to have operating agreements. However, it is beneficial to have one in place. A carefully drafted operating agreement outlines each member’s roles and entitlements, decision-making process as well as accounting methods among other functions. 

If you do not have an operating agreement, Arizona LLC laws apply. As you can imagine, these generic statutes capture a wide array of scenarios and are, thus, may not be optimized to your specific LLC’s needs and circumstances. Besides, without a written operating agreement, an implied, oral or recorded agreement may apply. 

Why create an operating system for your LLC?

An operating agreement eliminates guesswork and provides clarity for the business. This allows the shareholders to focus on growing the business while preventing costly disputes. Here are valid reasons why you need to include an operating agreement in your LLC.

To protect assets

Most entrepreneurs form limited liability companies to protect personal assets from the business’ debts, obligations and liabilities as they arise. However, if the LLC does not separate its day-to-day affairs from the shareholders, creditors might go after the individual members’ assets. A clearly written operating agreement ensures that the LLC is separate from the members. 

To help with dispute resolution

Disputes are not uncommon in business, especially if you are in a partnership. A properly written operating agreement can stipulate how the business will be run and what role each member will play. This can go a long way towards reducing the possibility of conflicts. And when a conflict arises, an operating agreement will outline how the dispute in question will be handled. 

An operating agreement is not mandatory in Arizona. However, taking time to create one can benefit your business.