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Operating Agreement

[AH-puh-ray-ting uh-GREE-muhnt]

What is the definition of Operating Agreement?
A written document that outlines the governance and operational guidelines of a Limited Liability Company (LLC), serving a similar purpose to corporate bylaws or a partnership agreement.
Using Operating Agreement in an Example

In an LLC, the operating agreement specifies each member's financial and managerial rights and duties, the procedures for admitting new members, and the protocols for handling the departure of a member. It acts as the framework within which the LLC operates.

Using Operating Agreement in a sentence

Before we finalize the formation of our LLC, we need to draft and agree upon the operating agreement to ensure all partners are clear on their roles and responsibilities.

Related Terms

OCBOA

A consistent accounting basis other than Generally Accepted Accounting Principles (GAAP) used for financial reporting, such as the income tax basis or a cash basis.
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OPEB

All post-retirement benefits other than pensions, such as health insurance, life insurance, and other non-pension benefits, provided by employers to their retired employees.
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Objectivity

In accounting, objectivity refers to the unbiased and impartial presentation of financial data, ensuring that such data is free from personal feelings or influences and accurately represents the financial reality.
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Obligations

Any amount or duty which may require payment, action, or performance by an entity at a future time.
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Obsolescence

The process or condition of becoming outdated or no longer used, typically because something newer or more efficient has emerged.
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Offer

In finance, an offer is the price at which a seller is willing to sell a security or other asset, indicating a willingness to transact at that price.
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Offering Price

Price per share at which a new or secondary distribution of securities is offered for sale to the public.
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Open-End Mutual Fund

A mutual fund that does not have a fixed number of shares outstanding, continuously offers new shares to investors, and buys back shares at their current net asset value.
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Operating Cycle

The period of time between the acquisition of goods and services involved in the manufacturing process and the final cash realization resulting from sales and subsequent collections.
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Operating Expense

An expense other than cost of goods sold that is incurred in running a business, including costs related to administration, sales, and other operational activities.
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Operating Lease

An operating lease is a type of lease agreement for equipment or property, typically structured with a term shorter than the asset's useful life. The lessor remains responsible for maintenance and servicing. This lease does not result in asset ownership transfer to the lessee.
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Operating Profit (or Loss)

Operating profit or loss is the difference between a company's revenues and its related costs and expenses, derived exclusively from its regular business activities, before deductions for interest and taxes.
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Opportunity Cose

The highest value or rate of return that could have been earned by an alternative course of action when a particular choice is made.
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Option

An option is a financial derivative that gives the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a specified price (strike price) within a specified time period.
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Ordinary Annuity

An ordinary annuity is a financial product consisting of a series of equal payments made at regular intervals at the end of each period, with interest compounding on these payments.
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Ordinary Income

Income that is earned through standard operations, such as wages, salaries, bonuses, and interest. It is categorized separately from capital gains and is typically taxed at a higher rate under the Internal Revenue Code.
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Organization

The act of arranging elements or details in a systematic, structured, or coherent manner, often to achieve specific goals or functions.
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Organization Expenditures

The costs incurred during the formation of a trade or business or for-profit activity before it begins active operations. These expenses may include legal fees, state fees, and other costs associated with establishing the entity. Taxpayers may elect to amortize these expenses over a period of no less than 60 months. If not amortized, these costs are not deductible until the business is sold or ceases operations.
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Original Cost

In accounting, the original cost refers to all costs associated with the acquisition of an asset, including the purchase price and any other expenses necessary to bring the asset into usable condition.
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Other Comprehensive Basis of Accounting (OCBOA)

A consistent accounting framework other than Generally Accepted Accounting Principles (GAAP) used for financial reporting. Examples include cash basis and income tax basis of accounting.
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Other Post-Retirement Employee Benefit (OPEB)

Benefits, other than pensions, provided by employers to their retired employees. These benefits can include health insurance, life insurance, and other forms of non-pension benefits.
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Output

An amount of something produced, especially during a given period of time.
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Outsourcing

The practice of contracting out certain business functions or processes to external entities or suppliers, typically to reduce costs, access specialized expertise, or improve efficiency.
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Outstanding

In accounting and finance, outstanding refers to the total amount of stock currently held by all shareholders, excluding shares held by the company as treasury stock, or to amounts that have not yet been settled or paid.
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Outstanding Check

A check that has been written and recorded in the issuer's financial records but has not yet been processed or cleared by the bank, and therefore has not been deducted from the bank balance.
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Over-the-Counter

Refers to the trading of securities, such as stocks and bonds, directly between two parties without the oversight of an exchange. Over-the-counter trading is typically done for securities not listed on a formal exchange, allowing for less regulated and more flexible transactions.
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Overhead

Costs of a business that are not directly associated with the production or sale of goods or services, including expenses such as rent, utilities, and administrative salaries.
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Overhead Application Rate

A standard rate used to allocate overhead costs to specific activities, typically measured in labor or machine hours.
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Owner’s Equity

The residual interest in the assets of a business entity that remains after deducting the entity’s liabilities; it represents the owner's claim on the assets of the business.
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