Operating Agreements for limited liability companies (LLC) in Florida are an essential component of even the smallest enterprise.
Despite this, there are several misconceptions about its purpose and importance.
This article explores some of the most commonly received questions related to operating agreements for limited liability companies in Florida.
It’s best to think of an Operating Agreement as the playbook or blueprint delineating the internal structure of a Florida limited liability company.
It is a legal document that explains how the company functions and operates, outlines who may have rights and responsibilities towards the company, as well as the relationship among the parties such as the company’s members and/or managers.
Although not an exclusive list, most operating agreements include rules related to the following areas:
While having an operating agreement is not statutorily mandated in the state of Florida, creating a comprehensive agreement is important for many reasons. Perhaps most importantly, an operating agreement provides legal protection for its members by clearly documenting the separation between the company and the member’s personal assets.
It also provides a basis for how the company will be managed, to which all members must adhere. This serves to avoid misunderstandings among the members and to reduce potential conflict.
Thirdly, having a well-written operating agreement allows for the members to customize the rules and procedures governing the limited liability company in Florida. This ensures that the company’s specific needs and culture are adhered to and honored.
Attorneys and other professionals who assist limited liability companies regularly advocate for companies to create an operating agreement to ensure the longevity and success of the company.
Perhaps the biggest pitfall is not having an operating agreement at all. This results in the company being subject to Florida statutory default rules, which may not align with the objectives of the members of the company.
However, in cases where there is an operating agreement, it is very important that the provisions are not vague or ambiguous. The intentions of the members should be clearly stated to avoid misunderstanding or conflict among the owners and decision-makers of the group. Unclear terms may lead to costly and detrimental litigation. For this reason, one-size-fits-all forms and online templates may be dangerous.
Operating agreements are complex legal documents that should be reviewed by a professional at the very least. Having a qualified attorney who is familiar with the laws of Florida related to limited liability companies is essential to having a beneficial operating agreement. Failing to do so may result in conflicting or ambiguous terms that can harm the entity and/or its members.
One of the most common pitfalls is the failure to update the operating agreement regularly to reflect any changes in the limited liability company’s structure or the intention of its members. Changes in laws also require the update of a company’s operating agreement.
Single-member limited liability companies in Florida benefit from having an operating agreement for several reasons.
In addition to adding legitimacy to the entity for purposes of securing financing etc., operating agreements for single-member limited liability companies reflect it as a separate legal entity that is distinct from its members.
This is very important for the purposes of maintaining any limited liability protection afforded to the members by virtue of the entity formation.
A limited liability company’s operating agreement is not the same as the Articles of Organization.
While the operating agreement governs the function and process of the company, the Articles of Organization are a statutory requirement that signifies the formation of the entity when filed with the Florida Department of State.
The Articles of Organization contain basic information about the company such as its name and address, the registered agent, as well as the structure of management.
While both of these documents are crucial to a limited liability company, they both serve very different purposes.
Unlike the Articles of Organization, the operating agreement for a limited liability company is not filed with the state of Florida.
These documents are usually not made public and are kept in a safe place with the internal records of the company.
They are made available to the members of the limited liability company as needed and when requested.
Despite the operating agreement not being a legal requirement, many banks require one to be provided when opening a business bank account.
Not only does an operating agreement provide important information related to the structure and authorized members, but it also ensures financial institutions of the company’s legitimacy, thereby improving the likelihood of approval for a business bank account or extension of credit, etc.
Understanding the significance of having an operating agreement for a limited liability company in Florida is crucial to every member of the entity.
This article has addressed only a few of the many questions that arise regarding operating agreements for limited liability companies in Florida.
By consulting with an experienced legal professional to customize an operating agreement that best reflects the company’s structure and objectives, the members of the entity can ensure the long-term success of the enterprise.
To learn more about how we may assist you with drafting your operating agreement in Florida, contact us here.
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