Many small business owners in Chicago find themselves navigating the complexities of entering into business contracts without the necessary legal guidance. This can be a costly challenge, as it is important to account for any liability, taxes, and asset ownership in an Operating Agreement. An operating agreement is a contract between the founding members of the business, detailing the roles, responsibilities, and rights of each member.

Just as the legal code and business regulations vary from state to state, the nuances between Illinois and neighboring states should be taken into account when drafting an operating agreement. An attorney that specializes in local law and regulations and is knowledgeable about the local and state tax codes is essential to serve as counsel when drafting the contract.

When creating an Operating Agreement for a business based in Chicago, there are several key elements to consider. Here are the five most important considerations for obtaining quality legal advice when establish an Operating Agreement in the Chicago area:

1. Investigating Legal Requirements & Limitations

The legal requirements for setting up a business and creating an Operating Agreement have potential limitations in the Chicago metropolitan area. Depending on the structure of the business, the requirements and regulations that apply may be different. Consulting an attorney can ensure that the Operating Agreement meets all the legal requirements while minimizing any potential tax liabilities.

2. Understanding Relevant Tax Laws in the Area

Taxes are an inevitable part of business operations. Filing requirements differ significantly in Illinois, and the rules vary across the different counties and municipalities of Chicago. In addition, passionate advocates for economic stimulus have ensured that the added tax benefits to businesses invest and expand in the Chicagoland area are numerous. An attorney that specializes in local law can help take advantage of these tax breaks and provide specific advice on regulations.

3. Determining the Roles & Responsibilities of Each Member

In addition to providing a legal framework, the Operating Agreement should make clear the duties and roles of each individual member. Every individual contributes to a business in some way, and it is important to establish clear roles, responsibilities, and rights from the get-go. This includes deciding what percentage of each member’s actions including decision-making, ownership, and labor shall be accounted for in the agreement.

4. Materializing Equity Determination for Each Member

This is particularly relevant for a business with multiple stakeholders. Deciding upon the division of share of equity is a delicate balance between the short-term interests of each individual and the long-term success of the venture. Incentivizing all partners to align their interests could be beneficial and ensuring that all members are treated fairly is equally important.

5. Defining Stakeholder Exit Options

It is a good practice to plan for the future and account for potential exits of stakeholders and investors. Business disputes are often the result of unintended outcomes by members. Securing buy-sell arrangements and solving disputes via mediation could be beneficial and the Operating Agreement should provide options in such cases.

Overall, obtaining an experienced attorney when entering into an Operating Agreement is essential. This agreement should be written in accordance with all applicable laws and regulations, provide a legal framework establishing the roles and responsibilities of all the members, define the equity of each member, and offer acceptable exit options in the case of a dispute or an exit of a stakeholder.


Operating Agreement,

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Chicago Businesses