When it comes to running a business, it is essential to have clear guidelines and agreements in place to ensure smooth operations and avoid potential conflicts. Two common types of agreements that are often used in business partnerships are the operating agreement and the partnership agreement. While these agreements share some similarities, they also have distinct differences that are important to understand. In this article, we will explore the differences between an operating agreement and a partnership agreement, their purposes, and what they typically include.

Operating Agreement

An operating agreement is a legal document that outlines the internal operations and management structure of a limited liability company (LLC). It is similar to a partnership agreement in that it details the nuts and bolts of how a company is run . However, an operating agreement is typically used for companies that are larger in scale with stakeholders, managers, and more intensive operational needs .

The primary purpose of an operating agreement is to establish the rights, responsibilities, and obligations of the LLC members. It serves as a contract between the members and governs various aspects of the company, including decision-making processes, profit distribution, member contributions, voting rights, and dispute resolution. This agreement provides clarity and protection for all parties involved and helps prevent misunderstandings or conflicts that may arise during the course of business operations.

Partnership Agreement

A partnership agreement, on the other hand, is a legal document that dictates how a small for-profit business will operate under two or more people. It is commonly used by partnerships, which are business structures where two or more individuals share ownership and responsibility for the business. Unlike an operating agreement that is specific to LLCs, a partnership agreement can be used for various types of partnerships, including general partnerships, limited partnerships, and limited liability partnerships .

The main purpose of a partnership agreement is to establish the terms and conditions of the partnership, including the rights and obligations of each partner, profit sharing arrangements, decision-making processes, and dispute resolution mechanisms. This agreement helps define the roles and responsibilities of each partner, sets expectations, and provides a framework for the smooth operation of the business.

Differences between Operating Agreement and Partnership Agreement

While both operating agreements and partnership agreements serve similar purposes in terms of outlining the internal workings of a business, there are several key differences between the two.

1. Legal Structure: One of the primary differences is the legal structure to which each agreement applies. An operating agreement is specific to LLCs, while a partnership agreement can be used for different types of partnerships.

2. Management Structure: Operating agreements often include detailed provisions regarding the management structure of an LLC, including the appointment of managers and their roles and responsibilities . Partnership agreements, on the other hand, may outline the decision-making processes and responsibilities of each partner .

3. Liability Protection: LLCs provide limited liability protection to their members, meaning that their personal assets are generally protected from business debts and liabilities. In contrast, partnerships do not offer limited liability protection, and partners are personally liable for the debts and obligations of the business. Therefore, an operating agreement may include provisions related to liability protection that are not typically found in a partnership agreement.

4. Flexibility: Operating agreements often provide more flexibility in terms of structuring the company’s operations and management compared to partnership agreements. This flexibility allows LLC members to tailor the agreement to their specific needs and requirements.


In summary, while both operating agreements and partnership agreements serve similar purposes in terms of outlining the internal workings of a business, they have distinct differences. Operating agreements are specific to LLCs and are typically used for larger-scale companies with stakeholders and managers. Partnership agreements, on the other hand, can be used for various types of partnerships and are generally used for small for-profit businesses. Understanding these differences is crucial when establishing a business partnership to ensure that the appropriate agreement is chosen and that all parties are clear on their rights, responsibilities, and obligations.