Operating Agreement Essentials for Construction Companies: A Multi-Part Series
The Core Problem: Why Generic Operating Agreements Fail Construction Companies
Construction business owners often rely on template operating agreements—forms downloaded from legal document websites, agreements designed for real estate companies, or documents created for professional services firms. While some of these templates may satisfy minimum legal requirements, many regularly miss provisions critical to construction operations.
The result? A business structure that fails precisely when you need it most—during cash flow crises, project disputes, partner conflicts, or transitions in ownership.
Why Construction Is Different
Construction companies operate under fundamentally different economic dynamics than most industries:
Negative Cash Flow Cycle: You often pay subcontractors and suppliers upfront, then wait 30–90 days for owner progress payments
Bonding Dependency: Surety companies control your project capacity; internal disputes directly impact bonding limits
Equipment Capital: Significant tangible assets require clarity about ownership, contribution, and depreciation
Project Volatility: Emergency capital needs arise suddenly—a performance bond crisis, equipment breakdown, or delayed owner payment
Relationship Economy: Your business value depends on trade relationships, client relationships, and key personnel
When an operating agreement fails to address these realities, specific disputes arise that would never occur in professional service firms or retail companies:
A partner refuses to contribute capital when a performance bond crisis hits
Ownership interests get diluted because someone can't meet an emergency funding call
Key personnel die or become disabled, and there's no mechanism to transition ownership
A member leaves and starts a competing firm—no non-compete clause exists
The bonding company gets nervous about internal chaos and reduces your capacity just as you're trying to bid your largest project
What This Series Covers
This multi-part series examines critical provisions that construction company operating agreements must address—or risk exposing your business to litigation, cash flow crises, disputes with partners, and bonding complications.
Unlike generic discussions of LLC law, each installment focuses on one category of provision, explores real construction industry examples, reviews actual court decisions, and explains why construction companies face unique risks that typical operating agreements ignore.
Who Should Read This Series
This series is designed for:
Construction company owners operating as LLCs without a properly drafted operating agreement
Contractors and subcontractors adding new partners and needing to restructure their operating agreement
Construction company principals who haven't reviewed their operating agreement in 3+ years
Any construction business owner who wants to protect their business, their bonding, and their personal assets
Why The Timing Matters
If your operating agreement was drafted more than three years ago, or if it was a template from an online service or a non-construction attorney, it may have gaps specific to construction industry operations. If you don’t even have an operating agreement, you can’t be addressing any of these issues.
Some of these gaps might cost you nothing. Others could cost tens of thousands in litigation or force you out of a business you built.
The time to fix your operating agreement is before a dispute arises—before a partner becomes difficult, before bonding complications emerge, before cash flow hits a wall.
A proactive review by a business attorney experienced in both construction law and entity formation can identify gaps, clarify ambiguous language, and ensure your agreement actually protects your business, your bonding capacity, and your personal assets.
Elkhoury Law specializes in both business agreements and construction. We work with construction companies on company formation issues, and to draft, review, and update operating agreements tailored to the industry’s unique operational demands. We understand:
How bonding companies evaluate contractor stability and management structure
Construction cash flow challenges and the gap between accounts receivable and accounts payable
The tension between maintaining working capital and making tax distributions
How construction contracts allocate risk through indemnity and insurance provisions
Stay tuned for the installments in this series. In the meantime, if you would like a review of your operating agreement, contact Elkhoury Law today!
