Commonly, many small and medium companies in Florida choose to structure their businesses as LLCs, especially due to its advantages such as asset protection, pass-through taxation, flexibility in sharing profits, fewer administrative liabilities, and protection against double taxation.
One of the most essential elements of an LLC is the operating agreement, which can be a useful tool to prevent owner disagreements, ambiguous responsibilities, and personal litigations against members from harming the company.
In this article, you will find out what you need to know about operating agreements in Florida.
Operating Agreements – Understanding the Concept
An LLC operating agreement is a document written on behalf of its members (co-owners) that establishes the ownership of the company, outlining the rules by which the administration will govern the business and clarifying the responsibilities of each member.
All of the LLC’s guidelines must be within the operating agreement, as it will provide the LLC’s value offer, the period of operations, the taxation structure, the addition of new members, the termination of members, the management structure, and the distribution of profits.
Are Operating Agreements Obligatory in Florida?
In the US, operating agreements are not required in several states, including Florida, District of Columbia, Ohio, New Mexico, Iowa, Georgia, Kentucky, Delaware, Alabama, Arkansas, Colorado, and Connecticut.
However, the document is extremely recommended, as having a written structure can protect the LLC structure if a multi-member dispute arises.
Most importantly, an operating agreement gives entrepreneurs the right to create their own rules for their companies. In case the members of an LLC do not create an operating agreement for their company, the state will end up creating the rules that will govern their business.
Does Single-Member LLCs Need an Operating Agreement?
Even though it is not obligatory, it is strongly recommended that owners of single-member LLCs structure an operating agreement in Florida.
In such cases, a single-member operating agreement will help the company solidify its status as a separate entity from the owner’s personal property and assets, strengthening the corporate veil. Plus, it also demonstrates business credibility to customers and suppliers.
What Are the Advantages of Operating Agreements?
Firstly, operating agreements help entrepreneurs organize how the business profits will be shared among its members.
For instance, an LLC that does not have an operating agreement will have to rely on state laws to determine how the profit shares will be distributed among its members.
Plus, operating agreements are great tools to help entrepreneurs controlling their LLCs, providing a detailed description of each member’s responsibilities and laying out what each one must know.
Besides, operating agreements help minimize and solve disputes among members because everyone knows all the details of the business arrangement beforehand. An operating agreement also explains all the required procedures for the dissolution of an LLC.
How Much Time Do the Members of an LLC Have to Establish an Operating Agreement If the Document Was Not Made During the Company’s Inception?
In Florida, entrepreneurs who are members of LLCs have no time limit for when to establish an operating agreement. An operating agreement can be prepared either before, during, or after the establishment of an LLC.
Again, LLCs are not obligated to prepare an operating agreement in the state of Florida – even though it is recommended.
What Are the Most Important Terms to Include in An Operating Agreement?
Essentially, the first term in an operating agreement must provide about the LLC’s creation, including information such as:
- In which state the company was formed
- The date of the company’s formation
- The identification of the LLC members
Another essential provision in an operating agreement is to express ownership interests, such as percentage ownership, or membership units. In this term, each member of the LLC will be listed along with his/her percentage of units owned.
Another important provision includes management and voting rights, including whether the LLC will be member-managed or manager-managed, and how voting will work in the company.
Other important terms include each member’s capital contribution to the business (multi-member LLC), the LLC’s distribution of profits and losses among members, how to deal with membership changes, and the required procedures for the dissolution of the company.
Regardless, it is crucial to understand that all operating agreements in Florida need to change and evolve as LLCs grow further. Hence, the optimal approach is to hire an expert business attorney to guide and instruct you whenever it may be necessary.