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Please provide an example of a situation, real or hypothetical, in which an operating agreement would...

Question:

Please provide an example of a situation, real or hypothetical, in which an operating agreement would be helpful in avoiding a larger issue.


Answers

Generally,operating agreement is a contract between members or partners of the company.It determines the company's structure,aims,goals,activities,roles of members,shares and liability of individual members or partners.Lets consider a situation of a partnership company.Assume that there is a company established by two partners and there was an operating agreement between them.Both partners considered various situations and took managerial decisions with mutual acceptance.But loss occured after implementing those decisions and issue arised between partners.First partner blamed the second partner by setting him liable for losses and this issue was presented in court.Then,the second partner provided the operating agreement in the court where the agreement describes that both partners agreed to share profits and losses equally.As per the agreement,court decided that both partners need to share losses and only one partner cannot be held liable for losses as there was mutual acceptance.While incorporating the company,if there was just a verbal agreement or no agreement,then it would be difficult for the second partner to get out of this blame and the entire burden of paying loss would be only on second partner.Second partner would not be able to pay the entire loss occured and the issue would turn even more bigger and both partners would fight among themselves for ages.With the help of operating agreement,second partner could prove that there was mutual acceptance and both of them were equally responsible for losses occured. Operating agreement was helpful and controlled the situation form turning worse.Hence,this is a situation where operating agreement was helpful in avoiding larger issue.

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