Since the law in Florida does not require creating an operating agreement for limited liability companies (“LLCs”), current and potential business owners can wonder if they need one. With several years of experience dealing with business law matters at the Finity Law Firm in Florida, we can say with certainty that not having a Florida operating agreement is a very bad idea.
Failing to have an operating agreement can jeopardize everything you’ve been working for. You must commit to having an operating agreement in place for your business right from the start.
What is an Operating Agreement?
An operating agreement is a key document outlining the financial and functional decisions of the business, including rules, regulations, and provisions. The object of the document is to regulate the operations of the business in a way that fits the business owners’ unique needs, called members. Once the document is signed by the company’s members, it acts as an official contract which binds them to its terms.
Who is it generally for?
Even if you are the sole owner of your business, it would still be prudent to have an operating agreement in place. The business would be regulated by the default rules laid down by state law in the absence of an operating agreement, which might not be the most beneficial rules for your particular business. The inclusion of an operating agreement will also help secure your limited liability status if you are the sole owner of the company, and show the courts that you were really running the business as an LLC instead of a sole proprietorship. In a lawsuit, this will greatly impact your personal liability. Also, many banks will require a company to provide an operating agreement before opening a business account for the owner or owners.
For these reasons, we highly recommend that you develop a detailed operating agreement that is designed specifically to the needs of your business and that protects your personal finances and business goals. What types of businesses need operating agreements?
Every company should have a written agreement setting out its plan of action and operation, policies, and regulations. Although many companies have an understanding of their goals, duties, and policies, having these things written down can provide a sense of stability, make the organization operate more efficiently, and ensure that everyone involved knows their personal position, as well as their business rights and obligations.
There should be an operating agreement for all LLCs with two or more members. This document is not needed for an LLC, but in any case, it is a good idea as discussed above.
An operating agreement is similar to the bylaws that guide the board of directors of a corporation and a partnership agreement that partnerships use. A corporation requires bylaws, but a partnership agreement is not required for a corporation.
Get Help from an Attorney
There is a lot of excitement in the air when businesses are being created. Members may address a few aspects of the business informally, and when they appear to agree on those few items verbally, they tend to believe that their ideas are integrated across the board. This is not necessarily true and can change over time.
Future disputes about the business’s direction and the members’ rights and obligations can lead to internal squabbles and even harm consumer or employee relationships. Ultimately, this will cost the business money, and could even deter future business and progress.
To build an operating agreement, you can use online resources (which is not recommended as every business’s needs vary), but by getting the support of our business law attorney at the Finity Law Firm in Florida, you are best served. Our attorney will ensure that all applicable provisions are included and your business operates as per the requirements of the State of Florida and your tailored needs.
References for personal use