How an Operating Agreement Benefits Your Florida LLC

How an Operating Agreement Benefits Your Florida LLC

Since state law does not make it a mandatory requirement for Florida limited liability companies (LLC) to have operating agreements, owners may think that an operating or shareholder agreement is unnecessary. However, there are many benefits to having an operating agreement, including:

Limited liability status protection. If a lawsuit is filed against the LLC, having an operating agreement in place will help ensure that the court will uphold the owners’ limited liability protection. This is especially crucial if the LLC is operating as a single-member entity, to clearly distinguish the business as an LLC instead of a sole proprietorship, which does not enjoy limited liability protection.

Defines ownership and management structure. If an LLC has multiple owners, an operating agreement should be created to outline the specific ownership and management roles and responsibilities of each member in order to avoid conflict.

Defines ownership shares. Whether owners decide that ownership shares should be split evenly or be tied to the exact amount of their individual financial contributions, the distribution of those shares should be detailed in an operating agreement.

Profit and loss distributions. An operating agreement should be used to define how profits and losses are distributed among members and detail the process for that distribution — i.e., making distributions on a regular basis or allowing them to be drawn at will — and taking each owner’s tax bracket into consideration.

Defines voting rights. Controversial decisions may arise in the operation of the LLC, so the operating agreement should detail each owner’s voting rights. Voting power can either be one vote per member or according to ownership shares.

Ownership transition. In the case of a member’s death, disability, retirement or wish to sell, a process for the transition of that member’s ownership shares needs to be outlined in the operating agreement.

Avoiding Florida default rules. The Florida Revised Limited Liability Company Act became effective January 1, 2014. The Act is a default statute, which means that it sets out a default set of rules that govern Florida LLCs. If an operating agreement speaks to a particular provision that the Act also covers, an operating agreement will trump the Act. If an operating agreement is silent on a topic, an LLC could become subject to the default provisions of the Act, which may not align with the owners’ business goals. An operating agreement allows you to develop guidelines for the operation of the business without having to adhere to Florida default LLC rules.

It is important that your LLC’s operating agreement be as comprehensive as possible so that you do not become subject to the default provisions of the Florida Revised LLC Act. Jurado & Farshchian, P.L. assists businesses with all their transactions and questions. Please call one of our experienced attorneys at (305) 921-0440, or email us at info@jflawfirm.com today.

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