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An operating agreement is used by limited liability companies, or a LLC. In the United States, most LLCs are required to have an operating agreement. The operating agreement will detail the function of the business. It will also outline the business' finances, such as how profits and losses will be distributed.
An operating agreement will also detail the duties, rights, and powers of the members and managers. It can also list ownership percentages for owners. This helps to protect the limited liability company from certain business liabilities. It also protects the individual members and managers. Having a written operating agreement offers better protection than verbal agreements.
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