What is Operating agreement?

An operating agreement is a legal document that outlines the management structure, operational procedures, and financial arrangements of a business entity, particularly for limited liability companies (LLCs). It serves as a contract between the members (owners) of the LLC, establishing the rights and responsibilities of each party and providing a clear framework for how the company will be run. In Switzerland, while LLCs are commonly used as business structures, an operating agreement is vital for ensuring smooth operations, preventing disputes, and protecting the interests of all stakeholders.

Key Features of an Operating Agreement

  • Management Structure: The operating agreement defines the management structure of the LLC, specifying whether the company will be managed by its members (member-managed) or by appointed managers (manager-managed). This section outlines the decision-making processes, authority, and responsibilities of managers or members.
  • Ownership Interests and Contributions: The agreement specifies each member’s ownership interest in the company, based on their capital contributions or other agreed-upon factors. It also outlines how profits, losses, and distributions will be allocated among the members.
  • Voting Rights and Decision-Making: The operating agreement establishes voting rights for members, including how decisions will be made (e.g., by a majority vote or unanimous consent). It may also specify the types of decisions that require a special vote, such as amending the operating agreement or dissolving the company.
  • Duties and Obligations: The document sets forth the duties and obligations of each member, including fiduciary duties, confidentiality, and non-compete clauses. It ensures that all members understand their roles and responsibilities within the company.
  • Dispute Resolution: In the event of disagreements or conflicts among members, the operating agreement may include provisions for resolving disputes, such as mediation or arbitration, to avoid lengthy and costly legal battles.
  • Dissolution and Exit Strategy: The agreement outlines the process for dissolving the LLC, should the members choose to wind down the business. It may also address how members can exit the company, sell their interest, or transfer ownership.

Operating Agreement in Switzerland

In Switzerland, operating agreements are particularly important for Limited Liability Companies (GmbH), which are a popular form of business structure for small to medium-sized enterprises. The Swiss Code of Obligations governs the formation and operation of GmbHs, and while an operating agreement is not legally required, it is highly recommended for providing clarity on business operations and ensuring that the company is run in accordance with the members’ expectations.

  • Legal Framework: While the Swiss Code of Obligations outlines the basic structure and operations of a GmbH, an operating agreement can further tailor these rules to meet the specific needs of the business. The agreement can cover management responsibilities, profit sharing, and decision-making processes that go beyond the minimum requirements set out by Swiss law.
  • Member Flexibility: The operating agreement provides members with the flexibility to structure their business as they see fit. For example, Swiss LLCs can have one or multiple members, and the operating agreement can determine how the company is managed, who has authority over financial decisions, and how profits are distributed.
  • Dispute Resolution: As in other jurisdictions, having a clear dispute resolution mechanism in the operating agreement is important for maintaining a harmonious business relationship. In Switzerland, the agreement can specify that conflicts should be resolved through Swiss courts or through arbitration, providing an efficient and effective method for resolving issues.
  • Tax Considerations: The operating agreement can also address tax-related issues, including the allocation of profits and losses for tax purposes. In Switzerland, tax treatment may vary based on the company’s structure and agreements between the members, making it essential for the operating agreement to reflect these considerations accurately.

An operating agreement is an essential tool for the smooth functioning of a Swiss GmbH, providing structure, clarity, and protections for the members. While not mandatory, it helps prevent disputes and ensures that the business runs according to the agreed terms. By addressing key issues such as management, financial arrangements, and exit strategies, an operating agreement can contribute significantly to the long-term success and stability of the business.