Starting a Florida limited liability company (LLC) is a major undertaking, especially if it involves more than one person. While not technically required by law, it is always a good idea for multi-member LLCs to execute an operating agreement as part of the business registration process. Similar to a partnership agreement, an operating agreement is a binding legal contract that spells out the rights and responsibilities of each member of the LLC.
What Operating Agreements Can and Cannot Do
A “member” of an LLC is somewhat analogous to a stockholder in a corporation. But one of the key differences is that while stockholders are not presumed to be responsible for the day-to-day management of a corporation (that is the role of the board of directors) LLCs are treated as “member-managed” entities. This means that by default, each member has a say in the management of the business proportional to his or her percentage of ownership.
This is not an ideal arrangement for many Florida LLCs. By adopting an operating agreement, the members can elect to have a “manager-managed” LLC, where one or more individuals who are not necessarily members have exclusive control of the business. This must be stated expressly; under the language of Florida’s current LLC laws, it cannot be an implied or oral understanding.
That said, Florida law does recognize oral or implied operating agreements. But to avoid unnecessary ambiguity and confusion not to mention potential litigation it is always best to have a written agreement. While there is no one-size-fits-all approach to operating agreements, at a minimum such contracts should address the following subjects:
- the percentage of each member’s ownership interest in the LLC;
- the voting rights of each member;
- each member’s share of any profits or losses incurred by the business;
- the time, place, and manner of any mandatory membership meetings;
- in the case of a manager-managed LLC, the process for electing the manager(s), and that person or persons’ specific duties and powers;
- the process for each member to sell or otherwise dispose of their interest in the LLC; and
- procedures for dissolving the LLC and winding up its affairs.
While LLCs have wide discretion to tailor an operating agreement to fit their unique situation, there are certain things that cannot be done legally. For instance, Florida does not allow an operating agreement to provide absolute indemnification for a manager or member who acts in “bad faith” or intentionally breaks the law. Nor can the operating agreement “eliminate” the duty that all members have to engage in “good faith and fair dealing” with one another, although the members may agree how to determine if such standards have not been met (within reason).
Simply Legal Can Help Get Your LLC Up and Running
These are just a few of the issues involved when putting together an LLC operating agreement. Our legal team can assist you in every step of starting a new LLC, from filing articles of organization with the state to preparing an operating agreement, as well as providing ongoing general counsel services for your business. Call Simply Legal today at (305) 858-6208 to schedule a complimentary consultation with one of our attorneys.