Forming an LLC involves different fees, forms, and conditions, but one of the most important parts of forming an LLC involves drafting the operating agreement. An LLC operating agreement is a set of rules that help to govern the LLC. It is not legally required in the state of Florida, but it is highly recommended. It states how the LLC is run and provides structure.
What is an Operating Agreement?
The operating agreement of an LLC provides the rules that an LLC will operate by. It should outline the internal operational structure, and help to solve disagreements, should they occur. This is because members are liable for actions that go outside of the protections of general LLC liability law.
The operating agreement helps to keep duties straight and provides a transparent operational atmosphere. It can also help to settle arguments should they make it to the court level.
Why Do You Need an Operating Agreement?
Having an operating agreement is important for a few main reasons. For example, the operating agreement can help to prevent disputes between members. They are able to clarify any verbal agreements and support them in court as well.
Operating agreements also protect the limited liability status of the business should a problem occur. Whether an LLC is set up as a holding company, or a standard LLC, the operating agreement can protect everyone involved.
Information to Include in an Operating Agreement
Here’s a list of information Florida LLCs should include in their operating agreement.
- Defined member ownership: In an LLC each member can have a different percentage of ownership, and this should be outlined in the operating agreement to make it clear for all.
- Profit Distributions: Similar to that of defined ownership, the amount of profit that goes to each member should be outlined as well.
- Registered agent: Every LLC must have a registered agent, who must have an address within the state of Florida. This person (or entity) should have their address and name in the operating agreement.
- Responsibilities: Each person in the organization will have responsibilities, and these should be outlined in the operating agreement.
- Designation of parties: The operating agreement should not only have the names and addresses of members but also the managers as well. It should also have the addresses of everyone involved.
- Procedures of transferring interest: Should the LLC be dissolved, the procedure to liquidate assets or transfer interest must be outlined in the operating agreement.
- Information about the articles of organization: The articles of organization are what form an LLC. In order to make connections between this and the LLC, information should be included in the operating agreement.
- Duration of the LLC: Some LLCs are conditional, or defined for a specific task, or period of time. This should be outlined in the operating agreement.
- Address: General information such as the address and place of business of the LLC, or your personal address if you run an online business.
- Business purpose: Whether you sell goods, offer a service, or are a holding company, this is the business’ purpose.
- Capital contributions: Businesses that rely on capital (investments or donations) need to outline these in the operating agreement. For example, some businesses wish to ban contributions, whereas other LLCs may require it. If these contributions will change the percentage of interest, then this procedure should be defined.
- Member voting: Most LLCs hold meetings and votes. If there are rules to define these practices they should be outlined, including when they occur, how they occur, and how the votes will be taken, as well as how many votes each individual member will get.
- Management: There are two types of management scenarios for an LLC, member-managed and manager-managed. If an LLC is manager-managed, details should be included about salary and elections.
- Dissolution and withdrawal of members: There should be provisions for how new members may be admitted, as well as what happens when a member withdraws, or the whole LLC wishes to dissolve.
- Death of a member: If a member happens to pass away, it is important to have rules outlined about what will occur in this case. It might include other members purchasing their interest, allowing a spouse or child to acquire it, or giving the rest of the members the ability to block the transfer to an heir.
How to Draft an LLC
Operating Agreement in Florida
An LLC operating agreement is an essential step in forming an LLC. By drafting an operating agreement with a lawyer, you can ensure that your business is protected by the law. If you do not have a legitimate operating agreement, then your LLC will be governed by state law. This is why forming an LLC, and having your operating agreement prepared by a lawyer is the best choice.