What Is an Operating Agreement and Why Does Your Florida LLC Need One?
Florida law does not require a limited liability company to have a written operating agreement, but the absence of one can create significant problems. This article provides general educational information about operating agreements. It is not legal advice.
What Is an Operating Agreement?
An operating agreement is an internal document that governs how an LLC is managed, how profits and losses are distributed, and how major decisions are made. It defines the relationship between the members (owners) of the LLC.
What an Operating Agreement Typically Covers
- Ownership structure: The percentage of ownership held by each member.
- Management: Whether the LLC is member-managed or manager-managed, and who has authority to act on behalf of the company.
- Profit and loss allocation: How financial results are distributed among members.
- Voting rights: What decisions require a vote and what percentage is needed to approve them.
- Buy-sell provisions: What happens if a member wants to leave, dies, or becomes incapacitated.
- Dissolution: The process for winding down the business if the members choose to close it.
Why the Default Rules May Not Work for Your Business
Without an operating agreement, Florida's LLC statutes provide default rules. Those defaults may not reflect the actual intentions or arrangements of the members. For example, default rules may not align with an unequal profit-sharing arrangement that the members have verbally agreed upon.
Operating Agreements in Multi-Member LLCs
In a business with multiple owners, a clearly written operating agreement can help reduce the risk of disputes by setting expectations in advance. It can also address what happens in common scenarios such as a member wanting to exit the business or disagreements about direction.
For help drafting or reviewing an LLC operating agreement, contact a Florida corporate attorney.
This article is for general informational purposes only and does not constitute legal advice. LLC structures and operating agreement terms vary. Consult a licensed attorney for guidance specific to your business.
