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Business Disputes Over Operating Agreements

Operating agreements are a vital piece of any business, as they help clarify the governing rules of the company, provide a framework for all future business decisions, and help prevent business disputes. However, every business is uniquely complex, and disputes can sometimes arise regarding operating agreements. This can happen because the agreement was poorly crafted, leading to ambiguity and confusion, but they may arise regardless of how well an operating agreement is made. Business owners would do well to prepare for operating agreement disputes in their business, so they can address them quickly and effectively.

Business agreements are the lifeblood of most business interactions, both inside the company and outside. This includes partnership agreements, exchanges of goods and services, and even employment contracts. Understanding contract law is essential for these interactions, as poorly drafted contracts can lead to confusion and business disputes. The same rules apply to operating agreements. A strong operating agreement may even provide agreed-upon strategies for addressing disputes, avoiding costly lawsuits, and preserving business relationships.

Speak with a skilled New York business lawyer from Schwab & Gasparini today to learn more about how to create an operating agreement for your business. Call now to schedule a consultation with the Syracuse Office at (315) 422-1333, the Albany Office at (518) 591-4664, the White Plains Office at (914) 304-4353, or the Hudson Valley Office at (914) 304-4353.

What is an Operating Agreement?

An operating agreement is a document drafted for an LLC, corporation, or other business that establishes ownership of the business and provides clarity and instructions for governing the business. This is a primarily internal document, setting roles and expectations within the company to help clarify roles and boundaries for employees and owners. In New York, this may be a part of filing Articles of Organization for an LLC or other company. 

This document also specifies the roles of each member and provides guidelines for daily operation, including when member meetings are held, profit and loss distributions, and how to resolve disputes. Business owners may benefit from the legal advice of a business contracts lawyer when drafting operating agreements, as the strength of this document could influence many future conflicts and disputes. 

Common Business Disputes Over Operating Agreements

Even with the most airtight operating agreement possible, disputes may still arise. Businesses are complex mechanisms, with moving pieces and differing opinions that can often lead to conflicts. Shareholder disputes are common in business, and similar issues may arise over operating agreements. When one party feels that the owner has failed to fulfill their responsibilities as outlined by the agreement, they may raise concerns or complaints that could divide a business. Additionally, while many business disputes may come from employees and managers, shareholder disputes may also arise over issues like the distribution of profits and other issues. 

For more information on how to resolve business disputes, speak with an experienced New York business contracts attorney from Schwab & Gasparini.

Failure to Execute Operating Agreement

One of the most common disputes that may arise is an actual or perceived failure to execute an operating agreement. Since an operating agreement naturally outlines the expectations for the leadership of the company, employees and other contributors or investors may at some points feel that the owner of the business is not fulfilling the duties they are required to. This can quickly lead to disputes and disagreements that, left unchecked, could derail a business and damage profitability and internal support structures. 

Shareholder Disputes

Another potential issue that could arise from disputes over operating agreements is shareholder conflicts. Shareholders in businesses can be either minority or majority shareholders. Majority shareholders generally own 50% or more of the company, while minority shareholders will own a smaller portion. Majority shareholders have a variable responsibility to minority shareholders depending on the contractual agreements and operating documents. A lack of clarity in these documents or failure to honor them could lead to shareholder disputes and legal actions. 

Resolving Business Disputes

However, a strong operating agreement may actually help solve business disputes rather than cause them. Many operating agreements provide instructions on how to resolve business disputes within the company, which means that an effective agreement can actually help prevent and resolve issues instead of causing them. This is one of the many reasons that drafting an effective operating document is so crucial for business owners. 

There are many different methods for resolving business disputes, such as alternative dispute resolution (ADR) methods like arbitration or mediation, as well as more dramatic options such as litigation. Solutions may also include collaborative law measures that avoid litigation, or neutral evaluations in which a legal professional gives a projection of the court decision on a matter. The possibilities for dispute resolution are nearly endless, which is why it is so important to clarify company policy on dispute resolution in an operating agreement. 

How to Draft an Effective Operating Agreement

An effective operating agreement will cover several common issues in starting and growing a business, clarifying these points to avoid confusion and conflict in the future. The first thing an operating agreement should address is the management and direction of the business. This document is intended to provide clear guidelines and an actionable vision both for the impact of the company as a whole, as well as the methods and accepted practices for executing that vision. This should provide clear guidance for company owners and establish their responsibility to their employees. 

An operating agreement should also address the flow of profit and loss, providing clear details for both employees and shareholders. These explanations and clarifications can help avoid disputes and conflicts further down the road. Additionally, an effective operating agreement will provide guidelines for internal conflict resolution. There are numerous methods for conflict resolution in business disputes, but some may be more beneficial than others. Outlining these processes in an operating agreement can help avoid confusion and resolve business disputes effectively. 

Speak with a New York Business Attorney Today

Business disputes can quickly cause major issues in a corporate workplace, and if they are allowed to escalate, they could damage profitability and even lead to the failure of the company as a whole. Preparing to address internal disputes is a key strategy that can help businesses flourish in the long term, while also providing confidence and assurance in business ownership. This is why drafting an effective operating agreement is so critical. Speak with a skilled business contracts attorney from Schwab & Gasparini today to discuss operating agreements for your business. Call the Syracuse Office at (315) 422-1333, the Albany Office at (518) 591-4664, the White Plains Office at (914) 304-4353, or the Hudson Valley Office at (914) 304-4353 for more details.

Mon Dec 22 2025, 12:00am