Why You Should Create a Coffee Shop LLC Operating Agreement

Coffee Shop LLC Operating Agreement

Why You Should

Create a Coffee Shop LLC Operating Agreement

Note: We are not dispensing legal advice. This post is for educational purposes only.

There are plenty of advantages to starting a coffee shop with a partner or team of partners.

Partnerships can often help support its members in creating a new coffee business. In addition, each co-owner can bring a wide range of expertise, skills, time, energy, and money to the table.

But it's not always sunny skies. It's common for many partnerships (and friendships) to become strained and ruined from operating any business together, including a coffee business.

The pressure can be exceedingly high.

That's why it's essential to have clear expectations for each business owner. These expectations may be laid out in written managerial procedures.

The coffee shop operating agreement is not only an important tool to establish each partner's role. It may also be required for some states during the business formation process.

In this post, we'll discuss why you should create a Coffee Shop LLC Operating Agreement – and what is typically found in this document.

Additionally, in forming your operating agreement, you may also seek the advice of an attorney or consultant. 

What Is a Coffee Shop Operating Agreement?

A coffee shop business operating agreement is a document that lays out all of the obligations, rights, compensation benefits, business structure, managerial procedures, and other considerations for each member.

It is a signed agreement between all parties that share ownership of the coffee shop.

Some states may require or recommend an operating agreement to be completed and signed by members. However, it may not need to be submitted with your application for incorporation to their state's Secretary of State's office.

If an individual state does not require an operating agreement, it is often recommended that an agreement be created for members.

This may help to create procedural business norms and settle disputes if there is a problem or disagreement in the future. Additionally, it may help to affirm each member’s liability protection offered by an LLC because the agreement recognizes every signed member.

We've previously covered the benefits of starting a coffee shop LLC, which you may want to review.

Your Coffee Shop Business Operating Agreement

What does a typical operating agreement contain?

A coffee shop operating agreement may contain the following:

• The name and personal information of each member
• Responsibilities and obligations of each member
• Compensation or percentage of the profits each member is entitled to
• Voting rights and other decision-making rights
• Buyout or exit strategy for each member
• What happens when new members join or leave the business
• Other managerial procedures or specific issues addressed
• Signatures and dates

Further Reading: Benefits of Starting a Coffee Shop LLC

Coffee Shop LLC Operating Agreement

Coffee Shop Business Smarts

When Should You Create a Coffee Shop Operating Agreement?

As mentioned earlier, some states require an operating agreement to be completed and signed by members during the business formation.

If you open a coffee shop LLC in your state that requires an operating agreement, you should also write it down and have each member sign it.

However, if your state does not require an agreement and you have decided to open a coffee business with another partner or group of partners – it may be a good idea to write one anyway.

The development of your agreement should take place early in the process of starting your coffee business. Knowing what each member must do can help the planning process run more smoothly.

Often if there is a legal dispute, the courts may rely on what is written in the agreement. If there is no agreement, you may have to rely on the laws, regulations, and the court’s decision to solve matters.

Coffee Shop Management

Planning for Your Coffee Shop Success

An operating agreement offers members the following:

• Clarity
• Understanding
• Reminders of agreed-upon attributes
• Serves as a resolution tool
• Offers guidance
• Sets managerial and organizational procedures

Coffee Shop Management

Why Have a Coffee Shop Operating Agreement?

An Agreement Offers Clarity

Establishing pre-determined roles will allow coffee shop co-owners to see what is expected of themselves and each other.

While every co-owner is a “boss,” – there needs to be a clear division of labor and managerial responsibilities agreed upon. This way, business management is efficient and effective.

Unclear roles can work to develop organizational inefficiencies, a chaotic work culture, and even resentment among co-owners and staff. On the other hand, clarifying roles and responsibilities for each member could be written to inspire teamwork and accountability.

An Operating Agreement Promotes Understanding

Knowing what needs to be done and why it needs to be done offers a good understanding of each role.

Suppose you understand your function is hiring amazing baristas and sourcing your wholesale coffee beans. At the same time, your co-owner may be responsible for accounting, marketing, and managing your POS system. In that case, you'll each be able to work more effectively.

An Operating Agreement Serves as a Reminder to all Owners

Over time, responsibilities can get muddled or foggy. A written agreement allows every member to revisit their assigned duties and those of the other members.

Reminders are needed to run the business smoothly. They help keep everyone on track.

An Agreement Serves as a Resolution Tool

A previously agreed upon agreement allows every member a resolution tool. If there is a disagreement, argument, or even legal dispute, an operating agreement would probably be among the first things to consider when deciding on a resolution.

Therefore consider writing your agreement with the idea that it could help you resolve questions in the future.

For example:

• what happens if a member decides to sell his share of the business?
• What happens if more money or capital needs to be raised to cover expenses?
• If there is a desire to open a second or third location, do the obligations stay the same for each member?

Offers Members Guidance

Your coffee shop operating agreement will guide its members during certain circumstances. For example, a member's death, illness, or divorce may occur. How will the other member or members proceed? If another member joins the operation, what are the responsibilities of the new and existing members – how does it change?

Legal Direction

Your operating agreement may outline different things to avoid a legal solution. In other words, allow the parties to best settle any disputes or actions before getting involved with courts.

How to Determine What Goes In an Operating Agreement

Starting a coffee shop is an exciting time. But, the excitement may subside sooner or later, and running a coffee shop may lead to coffee owner burnout, disagreements, or absences.

Managing any business over time requires constant adherence to structure adaptation, foresight, and delegating shared responsibilities.

Good management requires clearly defined objectives, roles, and vision.

This takes time of time to develop a thoughtful agreement. Therefore, I recommend starting early in the planning process.

In addition to discussing your coffee shop business concept, your coffee shop startup budget, and choosing the right coffee shop location, you'll also want to have several conversations that allow you to create an operating plan.

I want to encourage you to sit down with your co-owners or other members – and agree upon the division of labor among all members, lay out expectations, and possible remedies for any foreseeable issue.

Starting Your Coffee Shop

Elements of a Coffee Shop LLC Operating Agreement

An operating agreement may contain the following:

Personal information:

It may seem obvious, but having your name, contact information, and signature identifying all parties should be included in an operating agreement.

Responsibilities and obligations of each member

The agreement doesn't have to be complex or written in legalese, but it should detail the rights and responsibilities of each member.

For example, it may require that each member contribute a certain percentage of investment, work a certain amount each week, or detail what part of the business needs to be covered by the member (accounting, hiring, firing, marketing, training, etc.) Perhaps one member is responsible for the brick-and-mortar business, while the other is responsible for your coffee shop truck.

Compensation or percentage of the profits 

The agreement may include how much each member will receive in base salary, a percentage of the profits, health benefits, etc. What is the process for salary increases, decreases, and other items such as vacation?

Voting rights and other decision-making rights

How will decisions be made? An operating agreement may spell out each member's voting rights or decision-making rights. Some investors may not have any voting rights, for example.

New Members, a Buyout, or an Exit strategy

An operating agreement should contain specific language about the possibility of new members joining the coffee business. What would this mean for the existing members?

How will this be handled if members want to leave or sell their stake in the coffee business?

Whether for personal reasons or differences in management styles, it may be common for members to leave an existing business they've helped to create. You want to have a clear understanding of what happens during this process.

In addition, the operating agreement may outline how to dissolve the business and how the assets or obligations would be addressed and dispersed.

Other specific issues addressed

Every coffee shop business is different, and the needs of its owners are personal and unique. Therefore, every operating agreement will have additional elements to be agreed upon.

Further Reading: Requirements to Open a Coffee Shop

Your Coffee Shop LLC Operating Agreement

Related Questions:

What if I am already running a coffee business? Is it too late to have an operating agreement?

If you are currently operating a coffee business with partners but do not have an operating agreement, you can still develop one. The operating agreement's idea is to offer guidance and clarity and settle disputes before they arise.

Suppose you have been running an existing coffee shop successfully but see how an operating agreement may be helpful. In that case, it may be worth it to sit down and agree on your set of responsibilities as soon as possible.

Where should an operating agreement be kept?

The agreement should be kept with other essential business documents and in a safe place. Like all business core records, it should be kept confidential as members’ personal information, salary, and benefits may be included in the documents.

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