S Corporation Operating Agreements

bizfluent article image

Nick Daly/Digital Vision/Getty Images

An S corporation operating agreement, also known as the corporate bylaws, provides an overview on how the corporation will be operated and managed. Although the operating agreement does not need to be filed with your state incorporation paperwork, it is a legally required document.

Ownership and Board Responsibilities

An S corporation operating agreement should name the corporate officers, the size and duties of the board of directors, and the responsibilities of share owners. The document will also provide details such as when the board will meet, the date of the corporation's annual meeting, and board sub-committees. Since an S corporation will have a limited number of shareholders, the agreement will include the rules concerning the buying and selling of shares.

Cover Your Legal Exposures

The operating agreement is the legal document that dictates how your S corporation will be managed. It needs to have enough detail to cover any questions or legal conflicts that may come up. For example, the agreement should specify how a share owner would sell his shares. An S Corp often requires shareholders to give the company first claim on buying any outstanding shares. A new, smaller S corporation might be able to craft the document from an existing template available on small business legal assistance websites. For a larger, more complex corporation, professional assistance from an attorney familiar with corporate law may be required to craft the document.