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Operating Agreement
I need an operating agreement for a newly formed limited liability company with two managing members, outlining their roles, responsibilities, and profit-sharing arrangements. The agreement should include provisions for decision-making processes, dispute resolution, and procedures for adding or removing members.
What is an Operating Agreement?
An Operating Agreement sets out the internal rules and procedures for running a limited liability company in New Zealand. It details how company decisions are made, how profits and losses are shared, and what happens when members join or leave the business.
While not legally required under NZ's Companies Act 1993, having this agreement helps prevent disputes between business owners by clearly spelling out everyone's rights and responsibilities. It covers key areas like management structure, voting rights, capital contributions, and the process for transferring ownership - making it an essential tool for protecting all members' interests and keeping the business running smoothly.
When should you use an Operating Agreement?
Create an Operating Agreement when starting a new limited liability company in New Zealand, ideally before you begin operations. This timing gives all members clear expectations from day one and prevents future disagreements about roles, responsibilities, and profit sharing.
It's especially important to put this agreement in place when your company has multiple owners, complex ownership structures, or plans for future growth. The agreement becomes vital during major business changes like bringing in new investors, expanding operations, or when members want to sell their stake - saving time and reducing legal complications during these transitions.
What are the different types of Operating Agreement?
- Limited Liability Company Operating Agreement: Standard multi-member LLC agreement covering basic governance and ownership rules
- Single Owner LLC Operating Agreement: Simplified version for solo entrepreneurs, focusing on asset protection and succession planning
- Operating Agreement For Member Managed Limited Liability Company: Specifically designed for companies where owners handle day-to-day operations
- Joint Operating Agreement: Used when multiple companies collaborate on specific projects or ventures
Who should typically use an Operating Agreement?
- Company Members/Owners: The primary stakeholders who agree to and are bound by the Operating Agreement's terms, including their rights, responsibilities, and profit shares
- Business Lawyers: Draft and review the agreement to ensure it complies with NZ law and protects all parties' interests
- Company Directors: Execute the agreement and ensure ongoing compliance with its terms in day-to-day operations
- Company Secretary: Maintains the agreement and ensures proper documentation of any amendments
- Potential Investors: Review the agreement when considering investing in or buying into the business
How do you write an Operating Agreement?
- Company Details: Gather NZ company registration number, business name, registered address, and primary business activities
- Ownership Structure: List all members with their ownership percentages, capital contributions, and voting rights
- Management Framework: Decide between member-managed or manager-managed structure, outlining key roles and responsibilities
- Financial Arrangements: Document profit-sharing formulas, distribution schedules, and capital call procedures
- Exit Strategy: Define procedures for member withdrawal, buy-sell provisions, and company dissolution terms
- Document Generation: Use our platform to create a legally-sound Operating Agreement that includes all required elements
What should be included in an Operating Agreement?
- Company Information: Full legal name, registered office, and business purpose under NZ Companies Act 1993
- Membership Details: Names, contributions, ownership percentages, and voting rights of all members
- Management Structure: Decision-making processes, meeting procedures, and voting thresholds
- Financial Provisions: Capital accounts, profit/loss allocation, distribution policies, and tax treatment
- Transfer Rules: Procedures for selling interests, admission of new members, and exit strategies
- Dissolution Terms: Process for winding up the company and distributing assets
- Amendment Process: Methods for modifying the agreement with member approval
What's the difference between an Operating Agreement and an Asset Purchase Agreement?
While both documents govern business relationships, an Operating Agreement differs significantly from an Asset Purchase Agreement. The key distinctions lie in their purpose, timing, and scope of application in New Zealand's business environment.
- Primary Purpose: Operating Agreements establish ongoing internal rules for running an LLC, while Asset Purchase Agreements handle one-time transfers of business assets
- Duration: Operating Agreements continue throughout the company's life, whereas Asset Purchase Agreements conclude once the transaction is complete
- Parties Involved: Operating Agreements bind company members internally, while Asset Purchase Agreements involve separate buyer and seller entities
- Legal Requirements: Operating Agreements are optional but recommended under NZ law, while Asset Purchase Agreements are mandatory for formal asset transfers
- Modification Process: Operating Agreements can be amended by member consent, but Asset Purchase Agreements typically can't be changed after completion
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