Setting up your business as a Limited Liability Company (“LLC”) provides the convenience of lesser regulatory requirements and the comfort that it protects your personal assets. You should also consider setting certain internal ground rules on how you handle and operate your LLC, in addition to filing your Articles of Organization with the state when forming your LLC.
Even though it is not required by the law in Florida, we suggest establishing an operating agreement to ensure that all members of your LLC understand their duties and responsibilities.
Why are LLC operating agreements important?
As recommended, it is very important to include an Operating Agreement when establishing an LLC. An LLC Operating Agreement is a legal document detailing the Limited Liability Company’s ownership and member duties. The financial and working relationships between business owners (‘members’) and between members and managers can be established in this agreement.
You should consider one, but most states do not require you to have one. It provides proof that your personal and business affairs are separate. And an operating agreement will go a long way to help you avoid business partners’ misunderstandings, disputes, and any future legal battles.
What are the benefits of having an LLC operating agreement in Florida?
The benefits of having an operating agreement for your LLC include:
- Avoiding personal liability. A well-drafted operating agreement will help ensure that a court will understand the limited personal liability of the owners of the LLC in the event of litigation. If an LLC is a single-owner company, this is especially relevant, as the operating agreement would help create the company as an LLC, not as a sole proprietorship which provides you the benefit of a separate legal entity.
- Defining ownership and management structure. To clearly define responsibility roles when it comes to the management and ownership of the LLC, LLCs with many owners require an operating agreement. An operating agreement helps to avoid any possible financial and company management misunderstandings between owners.
- Percentages. Owners will provide the LLC with various financial contribution levels and expect the percentages of ownership to be proportional to those contributions. In comparison, owners may decide to evenly split percentages. The precise essence of your LLC’s ownership percentages must be spelled out in an operating agreement.
- Profit and Losses. An operating agreement will describe the distribution of profits and losses by each owner, taking into account the tax bracket of each owner and whether distributions are to be made on a routine basis or drawn at will or not.
- Rights of Voting. If LLC owners experience a problematic decision, it is best to set out in the operating agreement the voting rights of each owner. Voting power can be split in two ways among LLC owners: according to their percentage of ownership, or one vote per member.
- Death/Retirement/Sale. If a member dies, retires, or decides to sell his or her interest in the LLC, the operating agreement should detail the procedure for doing so.
- Avoiding Florida default rules. If you do not have an operating agreement with your LLC, your company would be subject to the default LLC rules of Florida, which are not unique to your business’s wants and needs. Many LLC owners would like to set their own business guidelines; an operating agreement gives you the flexibility to do this.
Are there any limitations in Florida?
Laws on the establishment and activity of LLCs in Florida limit the provisions that can be included in the Operating Agreement by the owners of LLCs, but the members of the LLC are responsible for everything that is not governed by law. One such limitation is found in Section 608.423(2) of the Florida Law which states that LLC Operating Agreements do not eliminate loyalty and care obligations between business associates, limit the rights of someone who is not an LLC manager or member, or restrict access to LLC records.
The LLC law allows the company to use an emergency operating agreement for use if an LLC is run by a manager or managers when managers are not available due to a disaster/catastrophe.
Requirements for record-keeping
State regulations mandate the business to maintain written documents and records at the registered place of business, even though an LLC has its own Operating Agreement in force. Financial records, including all tax returns from past years and the Articles of Organization, are included in the necessary records.
Hiring an Attorney to Draft an LLC Operating Agreement
With the support of our experienced business law attorneys at the Private Corporate Counsel Firm, it is important to create an LLC Florida operating agreement tailored to your needs. If it does not meet the criteria of Florida law, a generic, one-size-fits-all operating agreement form or an operating agreement intended for use in another state may be detrimental for the LLC which is why we suggest you should not draft it alone.
References for personal use