Do You Really Need an Operating Agreement for Your Florida LLC?

As experienced Florida business attorneys, our answer is an unequivocal yes.

The benefits of having an operating agreement for your Florida LLC include:

• Protection of limited liability status. In case of litigation, a formal operating agreement will help ensure that a court will recognize the limited personal liability of the LLC owners. This is particularly important if an LLC is a single-owner company, as the operating agreement will help establish the business as an LLC, not a sole proprietorship.
• Definition of ownership and management structure. LLCs with multiple owners need an operating agreement to clearly delineate roles of responsibility when it comes to the management and ownership of the LLC. An operating agreement helps to eliminate any potential misunderstandings among owners about finances and company management.
• Definition of ownership percentages. Owners may provide different levels of financial contribution to the LLC, and expect ownership percentages to be in proportion to those contributions. Conversely, owners may decide to split percentages evenly. The exact nature of the ownership percentages of your LLC need to be spelled out in an operating agreement.
• Distributions of profits and losses. An operating agreement can define each owner’s distribution of profits and losses, taking into consideration each owner’s tax bracket and whether or not distributions are to be made on a regular basis or drawn at will.
• Definition of voting rights. If LLC owners encounter a controversial decision, it is best to spell out each owner’s voting rights in the operating agreement. Voting power can be split among LLC owners in two ways: according to their ownership percentage, or one vote per member.
• Transition of ownership. If a member dies, retires or wishes to sell his or her interest in the LLC, the process for doing so should be detailed in the operating agreement.
• Avoidance of Florida default rules. If you do not have an operating agreement for your LLC, your company will be subject to Florida’s default LLC rules, which are not specific to the wants and needs of your business. Most LLC owners will want to establish their own guidelines for their business; an operating agreement provides you with the flexibility to do this.