Fix Your LLC With an Operating Agreement

Operating AgreementLots of people set up Florida limited liability companies (“LLCs”) every day without ever entering into an operating agreement. So why do you need one? Simply put, an operating agreement will fix many problems before they can start.

Typically, we find that clients who just file their Articles with the State without getting a written operating agreement are both naive about the law and optimistic about their company. They don’t understand how the law treats LLCs in Florida, and they are not worried about the future of their business or their relationship with other members. They see the formality of an operating agreement as an unnecessary expense.

An LLC is similar to a corporation in that it offers limited personal liability. However, an LLC is not required to hold regular meetings, and there are no requirements to comply with other corporate formalities. When you file Articles of Organization on Sunbiz to set up an LLC, you certify that the LLC meets the minimum filing requirements of § 605.0201, Florida Statutes.

An operating agreement is an agreement among the members stating how the company will run its business and laying out the members’ rights and responsibilities. Florida law requires an LLC to have an operating agreement, but under the Florida Revised Limited Liability Company Act of 2013 (the “Act”), the operating agreement does not have to be in writing and can even be created by the conduct of the LLC members.

So what happens if you don’t ever enter into a written operating agreement? You are stuck with the provisions of the Act that serve as “gap fillers.” Gap fillers are contractual terms supplied by the Act when parties fail to address something important. You are also stuck with the waivable provisions of the Act that you may not want or like, including:

  • who manages the LLC;
  • how capital contributions are handled;
  • what happens when a member dies, becomes disabled, withdraws, or assigns his or her membership interest to another person;
  • what happens when a former member starts a competing business;
  • what happens when members can’t agree;
  • when and how members retain personal liability; and
  • how profit and losses are handled.

Even single member LLCs can have issues come up where having an operating agreement keeps the member out of trouble. For example, when the member dies, what happens to the LLC? You are stuck with whatever the probate court decides.

A properly drafted operating agreement is tailored for your business and addresses these (and other) questions before they become problems. For that reason, we think every LLC should have one.

 

 

 

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