Five Clauses Every Operating Agreement Needs

Business partners rarely call a lawyer when things are going well. They call when a co-owner stops showing up, starts competing, or wants out — and the first thing we ask for is the operating agreement. Too often, the answer is a template that doesn't fit the business, or no agreement at all.

First: a real decision-making provision. Who can bind the company, for what amounts, and what requires unanimous consent? Deadlock between 50/50 owners without a tie-breaking mechanism can paralyze a profitable company.

Second: buy-sell terms. Death, divorce, disability, and departure will happen to every business eventually. An agreement that values the interest and funds the buyout — often with insurance — turns a potential lawsuit into a transaction.

Third: capital call mechanics. What happens when the company needs money and one owner can't or won't contribute? Dilution, loans, or default remedies need to be spelled out before the cash crunch, not during it.

Fourth: restrictive covenants tailored to the business. Non-competes and non-solicits that are overbroad get thrown out; ones drafted to the actual business get enforced.

Fifth: a dispute resolution path. Mediation first, arbitration or litigation second, and a clear choice of venue. The partners who agree on how to fight rarely have to.

An operating agreement is the cheapest litigation insurance a business can buy. We draft and revise them for companies at every stage — and we litigate the ones that weren't.