Operating Agreement

An operating agreement is the central governing document of a limited liability company (“LLC”). The agreement is a contract between and among the owners (“members”) of an LLC and the company itself, setting forth the rules as to how the company will conduct its affairs, restrictions as to the transfer of equity, and the duties and rights of the members and managers, among other key provisions. In Oregon, operating agreements may be oral or written. However, oral operating agreements are difficult to enforce, as there is no written evidence of the existence of such an agreement. As a result, in the case of a dispute between the company’s members, the members will often be faced with a case of “he-said-she-said” to prove the existence of the operating agreement and its specific provisions. In Oregon, operating agreements are not required. So, an LLC in Oregon can function without one. However, even single member LLCs often create operating agreements to set forth in writing how the company is supposed to operate, and to further evidence the existence of the company as a separate legal entity from the individual owner. The equivalent of an operating agreement in a corporation is a shareholders agreement, which has many of the similar core provisions as in an operating agreement.