If you are thinking about forming a Limited Liability Company (LLC) in Miami, Fort Lauderdale, or anywhere in Florida – or you’re in the process of forming one – you are not alone. According to the Florida Department of State, Division of Corporations, there were more than 1.3 million active LLCs in the state as of July 2018.
One of the reasons this business model is so popular is because it is fairly easy to set up. Having said that, one of the most important steps in this process is a clearly defined set of rules for the management and operation of the company consented to by all of the owners (also called “members”). Legally, this is typically known as the Operating Agreement.
As defined in Section 605.0102(45) of the Florida Statutes, this type of agreement is valid whether it’s made orally or in writing. By law, you don’t have to file this document with any Florida agency. However, you (and any other owners) should keep copies just in case there are any disagreements or misunderstandings about the contents. Generally, the agreement includes the rules for decision-making, accounting and so forth. It also includes explanations of the members’ and managers’ roles and responsibilities, what will happen when and if an owner or owners leave the company, and disciplinary actions that will be taken in specific situations.
In other words, an operating agreement is essentially a contractual agreement between the owners and other key parties within the LLC. As such, its subject to the basic rules of contract law, unless the Florida Limited Liability Company Act stipulates otherwise. By law, an operating agreement can’t change any statutory limitations related to fiduciary duties and certain improprieties. Some of the other statutory restrictions on operating agreements are those pertaining to members’ merger and consolidation rights.
Florida law doesn’t mandate that you must have an operating agreement if you have an LLC. But what happens if you don’t have one? In that case, you will have little to no say in how your business is operated. Instead, generic rules set forth in the Florida statutes or similar provisions will automatically kick in. The lack of a written agreement is also detrimental because, as Section 605.0102(45) of the Florida Statutes stipulates, the agreement “may be oral, implied, or recorded in any medium.” Clearly, this increases the risks for misunderstandings and disagreements and lessens the chances of successful resolution.
Finally, having an operating agreement enhances your company’s credibility. This, in turn, can help you secure the funds you need to not only launch your business, but to keep it going and growing.
Statistically, approximately 50 percent of all businesses no longer exist after five years – including those in Florida. Most of these businesses fail due to owner disagreements, lack of funding, and all too often, lack of a clear understanding as to the roles, duties, and responsibilities of each member of the LLC. A clear, well-written operating agreement can help you avoid these common pitfalls.
If you have questions about how to draft an effective operating agreement for your Florida-based LLC, contact Capital Partners Law to schedule a consultation with an experienced business attorney today.
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This article is provided by Capital Partners Law for informational purposes only. It is not intended as legal advice and does not form the basis for an attorney-client relationship. If you need legal advice, please contact Capital Partners Law or another licensed attorney.