Operating agreements are often treated as formation documents. In reality, they are governance instruments that age alongside the business. When they fall out of sync with ownership, financing, or operational reality, the risk is rarely visible at first. It surfaces later, typically during conflict, exit, or litigation.
Most closely held companies do not revisit their operating agreements on a schedule. Amendments are usually reactive: a new investor joins, a founder departs, a financing closes, or a dispute exposes ambiguity. By that point, the document is no longer a planning tool. It is an exhibit.
The more durable approach is diagnostic rather than reactive.
Ownership changes are the most obvious trigger. Adding members, reallocating equity, or issuing profits interests alters the company’s internal economics. If voting thresholds, distribution provisions, or transfer restrictions are not updated simultaneously, the operating agreement may no longer reflect the company’s capital structure. In equal or near-equal ownership settings, even small misalignments can create a risk of deadlock.
Financing events present a subtler inflection point. Credit agreements often contain covenants that assume certain governance structures or restrict distributions and transfers. If the operating agreement permits actions that loan documents prohibit, the company may face internal authorization conflicts. These issues tend to emerge during distressed conditions, when clarity matters most.
Buy-sell provisions are another frequent source of friction. Valuation formulas drafted at formation may not account for growth, leverage, or market volatility. Funding mechanisms, such as insurance or installment structures, may no longer be viable. The result is not simply a pricing disagreement. There is uncertainty about whether separation is financially workable at all.
Board composition and management authority also drift over time. Companies expand beyond their founder structure. Advisory boards evolve into decision-making bodies. Managers take on roles never contemplated in the original agreement. If the document does not clearly allocate authority, disputes may turn on interpretation rather than business judgment.
Ohio courts routinely enforce the plain language of operating agreements rather than rewrite them after the fact. In Miller v. Mission Essential Group, L.L.C., the Ohio Supreme Court examined whether the operating agreements contained a basis for determining member interests, underscoring the importance of clear valuation mechanisms in governance documents.
Likewise, in Zayicek v. JG3 Holdings, L.L.C., the Ohio Court of Appeals evaluated whether a claimant was bound by an operating agreement’s terms based on the agreement’s specific definitions and membership language.
That posture matters. Courts are not inclined to rescue owners from drafting gaps or evolving assumptions. When an operating agreement no longer aligns with operational reality, the remedy is typically enforcement, not revision.
The increasing integration of technology and data policies adds a modern dimension to governance review. Companies are incorporating AI use policies, confidentiality controls, and information-sharing protocols into operational practice. If those policies materially affect decision rights or fiduciary obligations, referencing them within governance documents — without hardwiring them in a way that requires constant amendment — can reduce interpretive friction later.
The decision to amend, then, is less about perfection and more about alignment. Has the cap table changed? Has capital been raised? Have exit expectations shifted? Has management authority evolved? If the answer to any of these is yes, the operating agreement likely deserves review.
Amendments do not eliminate business risk. They recalibrate it. A document that reflects current ownership, financing realities, and governance structure is less likely to become a litigation flashpoint. A document left untouched for a decade may function adequately until it does not.
For closely held businesses, governance is not static. The operating agreement should not be either.
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