Suppose you’re starting a business and forming a limited liability company (LLC) in Florida. In that case, you’re not required to have an operating agreement, but it’s a good idea to have one in your records.
An operating agreement is significant if your LLC has more than one owner, or member, as it establishes ownership shares, profit and loss distributions, and member roles and responsibilities.
Why You Need an Operating Agreement
A smartly drafted operating agreement can help you in many situations, such as when your LLC merges with another business or a member is no longer capable of working.
The operating agreement establishes each member’s ownership share in the LLC, profit and loss distribution percentages, and how proceeds will be divided if the business is sold. An operating agreement also defines how decisions and member disputes will be resolved.
It also defines each member’s role and responsibilities and how the LLC is managed, clarifying who oversees which aspects of LLC operations.
Florida laws will apply by default without an operating agreement, and disputes may have to be settled in court, which can have serious negative consequences for the business.
What Should the Florida Operating Agreement Include?
For those establishing an LLC in the Sunshine State, it’s crucial to understand the components of a Florida Operating Agreement. This guide delves into the essential elements that ensure smooth business governance and adherence to state-specific guidelines.
- Each member’s rights and responsibilities: In Florida, the operating agreement should clearly stipulate the roles, duties, and entitlements of each member. This provides clarity and ensures the LLC functions effectively.
- Capital contribution requirements for each member: Detail the amount or value of contributions each member is required to make, which can serve as the basis for determining ownership percentages or profit-sharing ratios.
- Procedures for adding and removing members: Florida law allows flexibility, so specify the process for onboarding new members and the circumstances under which members can be removed.
- What happens when a member sells their interest, becomes disabled, or dies: Set out the process for transferring interest, and indicate how the LLC will operate in the event of a member’s incapacitation or death.
- Conditions under which a member might become bankrupt or insolvent: Clearly define the implications for membership and the LLC’s operation if a member becomes bankrupt.
Management and Voting:
- Management structure and roles of members: Florida LLCs can choose between member-managed and manager-managed structures. Clearly specify which structure the LLC will adopt.
- Voting rights of each member: Outline the voting power assigned to each member, which might be based on ownership percentage, capital contributions, or another mechanism.
- Rules for meetings and voting: Indicate how often meetings will be held, the quorum requirements, and the process for making decisions.
- Rules for managing potential conflicts of interest among members: Ensure transparency and fairness in decision-making by setting guidelines for disclosing and handling conflicts of interest.
- Allocation of profits, losses, and distributions: Define how the financial results of the LLC will be distributed among members, ensuring it adheres to initial contributions or a mutually agreed-upon formula.
- Provision for periodic financial audits or reviews: Indicate if the LLC’s financial records will undergo periodic audits or reviews for transparency and accountability.
- Tax treatment of the LLC: By default, Florida LLCs have pass-through taxation, but if you want a different tax status, you must specify this in the agreement.
Changes and Amendments:
- Process for amending the operating agreement: Outline the procedure and any required supermajorities for making changes to the agreement.
- Guidelines for company management during transition events: Set procedures to ensure smooth operation during pivotal changes, like a founding member’s departure.
- Conditions under which the LLC might be sold or merged: State the criteria and process for major corporate actions such as mergers or sales.
Disputes, Legalities, and Policies:
- Clauses for dispute resolution or mediation: Given Florida’s endorsement of alternative dispute resolution, include clauses advocating for arbitration or mediation before litigation.
- Guidelines for non-compete and confidentiality agreements: Define the parameters within which members cannot engage in competing ventures and must maintain the LLC’s confidential information.
- Provision for indemnification and limitation of liability: Detail the extent to which members are protected from legal claims arising from their role in the LLC.
Record Keeping and Communication:
- Details about record keeping requirements: Florida requires LLCs to maintain certain records, so detail these alongside any other record-keeping requirements the LLC deems necessary.
- Guidelines for how company-related decisions will be documented or communicated: Establish a system for recording and sharing critical company decisions with members.
Company Information and Dissolution:
- Description of the business’s purpose and activities: Specify the primary objectives and operations of the LLC.
- Identification of the registered agent and office: Every Florida LLC needs a registered agent in the state. Indicate this individual or entity and their address in the agreement.
- Procedures for dissolving the LLC: Outline the steps for dissolution, ensuring they align with Florida’s requirements.
- Procedures for winding down or liquidating the company’s assets: In the event of dissolution, provide guidance on how the LLC’s assets should be liquidated and how outstanding obligations will be settled.
How to Draft a Florida Operating Agreement
You can find operating agreement templates online from services like ZenBusiness, which will ensure the standard legal language and allow you to fill in the blanks. You’ll probably be able to find free templates online as well, but it’s advisable not to use those as they may include errors.
Consider having an attorney draw up your operating agreement if your business has multiple members. An attorney will ensure that all bases are covered, and all members’ rights are protected. They can also include language that is specific to Florida laws.
This could cost anywhere from $500 to $2,500, but it could save you much more.
Articles of Organization vs. Operating Agreement
The operating agreement should not be confused with your LLC’s articles of organization. The articles of organization officially form your LLC with the state and include no information about member roles or financial interests.
Also, the articles of organization are filed with the state and part of the public record, while an operating agreement is kept in your LLC’s records and referred to as needed.
Keep Your Florida Operating Agreement Up to Date
It’s a good idea to review your operating agreement periodically. Circumstances change, and the safest approach is to ensure your operating agreement is entirely up to date. Generally, your operating agreement will state that members have to vote to approve amendments to the operating agreement.
Don’t Skip the Operating Agreement
You’re not required to have an operating agreement in Florida, but the wise entrepreneur would never do business without one. It’s a document that could be critical to the future of your business. You may think a dispute will never arise, but times and people change.
You don’t want to end up in a bitter court battle because you pushed off creating an operating agreement. It’s a document that will protect the rights and interests of your LLC members and ensure smooth, continued operations in the event of any unexpected hurdles or pitfalls.
Does an LLC operating agreement need to be notarized in Florida?
No, operating agreements do not have to be notarized. They are not filed with the state, just kept in your records.
What happens if a Florida LLC does not have an operating agreement?
Florida default rules for LLCs will apply, but in cases of dispute, the law may be vague, and your members could end up in court.