Why you need a written Operating Agreement
Many Oklahoma cannabis professionals are learning the hard way that handshake deals don’t go the distance to mitigate disputes or protect their interest.
Cannabis culture may be unique in its affability, but business is business. And while partners who go into business together might start in alignment with their dreams, goals and vision for their venture, attitudes can change over time and there’s a lot that can come up along the way.
We’ve spoken with many industry professionals recently who are at odds with a partner and have nothing to protect their rights or prove their role within the business but text messages and word of mouth agreements. In the case a partner’s activity can be proven to be consistent with their text agreement, then they have a pretty strong argument... But who wants to risk that? A written Operating Agreement will protect each partner involved as well as the business itself.
What is an Operating Agreement?
An Operating Agreement is a legally binding document used to govern the internal operations of an LLC. It outlines a business’ financial and functional decisions to define ownership interest and create a common understanding of each member’s roles and responsibilities. Operating Agreements clarify verbal agreements and set expectations at the time you form the business that help keep you and your partners in right relationship and avoid disputes. The core elements of an Operating Agreements are:
Equity structure & ownership percentages
(contributions, capital accounts, allocations of profits, losses and distributions)Management & voting rights
Limitation on liability and indemnification
Books and records
Anti-dilution protections
Restrictions on transfer, buyouts, dissolution and liquidation
Confidentiality and restrictive covenants
Governing law and dispute resolution
An Operating Agreement would keep an owner from selling off their interest without a vote; define what that voting process would be, what happens in the unfortunate case a partner dies or someone needs to be removed. Without a written agreement in place, there are no real binding protocols or protections for any of these and a number of other scenarios. You could end up doing business with someone you never agreed to or find yourself cut loose having a difficult time reclaiming interest. In addition, when an LLC does not have an Operating Agreement members are at the mercy of default state rules.
Starting in agreement will keep you in agreement
It’s important to create an operating agreement at the onset of your business venture so that you and the business interest are both protected. Starting in agreement keeps you in agreement and helps solve disputes before they arise.
The Attorneys at Gies Law Firm can help you form terms that create clarity, build trust, protect interest and help you avoid any future business disruption. With time and attention to your business’ unique needs we’ll work together to create contracts that quell uncertainties and protect the best interest of the business and everyone involved. If you need help with a Partnership or Operating Agreement, schedule a consultation today.
If you’re also seeking OMMA licensure, ask about Entity Formation and Operating Agreements being a baked-in part of the application process we carry out for our clients.
