What's the difference between an operating agreement and a founders' agreement?


1

I am part of an LLC and have heard a lot about operating agreements and founders' agreements. What are the differences between the two for an LLC?

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asked Oct 29 '11 at 00:38
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Li Zhou
323 points

2 Answers


2

The operating agreement is a document, usually drafted upon formation, that basically includes all topics covered by a so-called "founders agreement": restrictions to transfer of ownership, profit splitting, what happens if the company needs money, etc.

The founders' agreement, for an LLC, is like the termsheet of the operating agreement. A shorter, less technical agreement between the founders where they agree on the business terms ($$$ in particular) that will be further developed in the operating agreement.

Have a look at this article for more detailed info.
Here is an example of a real-life founders' agreement (caution: not reviewed by a lawyer)

answered Oct 29 '11 at 03:02
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Veronica
829 points
  • An Operating Agreement is not required by law (this may vary by state). An LLC can legally operate without one, although it is not recommended. Without an Operating Agreement, the LLC is bound by the state's LLC Act. My understanding is that the only thing that is legally required is the Articles of Organization. – Zuly Gonzalez 8 years ago
  • Yes you are right, varies state-by-state. Edited answer accordingly – Veronica 8 years ago
  • Corrections to the answer: (1) The OA is not a "corporate" document, and "incorporation" does not apply to LLCs, because LLCs are not "incorporated", they are "formed". (2) The OA normally is not filed with the state - it is a private agreement among the relevant parties (which can include the LLC, its members, and its managers). – Dana Shultz 8 years ago

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This question was asked on Quora, too. Here is the heart of the answer that I posted there:

An operating agreement applies only to, and specifies the ownership and management of, an LLC.


A founders' agreement can address whatever issues company founders want to document to establish a fair ownership and working relationship and to reduce the likelihood of misunderstanding or animosity down the road. It usually is thought of in the context of a corporation (addressing, for example, vesting, voting and restrictions on transfer of stock), but it could, conceivably, apply to an LLC, too.

answered Oct 29 '11 at 10:01
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Dana Shultz
6,015 points
  • Dana, thanks for your response. If a person has NOT founded the company (LLC) but is a stakeholder ( – Li Zhou 8 years ago
  • The – Dana Shultz 8 years ago
  • Thanks, appreciate your help! – Li Zhou 8 years ago

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