Need an Operating Agreement?

Most businesses in Florida are closely held limited liability companies (LLCs), thus the question often arises whether or not these entities really need an operating agreement. This article is not supposed to provide legal counsel or to form an attorney-client relationship; it can be meant and then provide general info on this important and deep impacting topic.

By means of background, an LLC can be something of a hybrid coming from a partnership and also a corporation and was specifically authorized under Florida law slightly over 20 years ago. Previously, Chapter 608 of Florida’s Statutes controlled LLCs and provided a finite amount of guidance to companies and Florida’s Courts. Unfortunately, the countless default provisions seen in Florida’s Corporate Code would not appear in the earlier LLC Chapter. This all changed with all the enactment on the Revised LLC Act at Chapter 605, that took relation to January 1, 2014. After January 1, 2015, it is applicable to all Florida LLCs. Therefore, without specific provisions in the operating agreement to govern the operation and dissolution of the LLC, people who own LLCs will quickly realize themselves unintentionally in situations that they didn’t originally intend. A proper operating agreement could also embrace the benefits from the Revised LLC Act.

That said, the expense associated with an operating agreement served by an experienced business lawyer isn’t necessarily required in every instance. LLCs is usually divided into two categories; single-member and multi-member. While a well-crafted operating agreement will never be a detriment to some LLC it usually is one that the single-member LLC can conserve, based on its circumstances.

An operating agreement is usually thought of as the agreement between the members of your LLC governing such topics as how members can depart the entity and what rules affect the addition of newbies, if any are allowed. Therefore, in the case of any single-member LLC, it may not be described as a necessity, playing with the case of an multi-member LLC, it may be described as a very wise business decision. Without identifying responses to specific situations that will arise, for example the departure or death of any member, a dispute can evolve between your members which a Florida court are unable to readily or easily resolve. Even for specific events like valuation of membership interest, the members of your multi-member LLC might not exactly wish to accept the statutory default and will be better served to put on their own technique to address that situation.

A secondary consideration is to seek a pre-formatted, fill-in-the-blanks operating agreement or even hire a competent and seasoned business lawyer to arrange that document. Naturally, this type of choice is a small business or management decision, however, an operating agreement that will not be tailored on the unique needs of any LLC by somebody that understands the difficulties that arise and so are normally the topic of lawsuits will never address those unique needs adequately. The savings realized by collecting a pre-formatted operating agreement may result in substantially increased expenses later in case a dispute develops, and that is likely not anticipated or adequately covered by the stock operating agreement.

Back during the summer of 2010, the Florida Supreme Court addressed the ownership of LLCs in their Olmstead decision. The Florida Supreme Court confirmed an individual’s membership desire for a LLC is often a property right which is subject to your judgment, whether or not such judgment had not do together with the LLC. In response, Florida’s Legislature amended the existing LLC Statutes to clarify that the member’s desire for a multi-member LLC couldn’t be seized having a judgment simply the member’s right with a distribution in the LLC might be attached. The Revised LLC Act expanded on that so particularly for the multi-member LLC, an explanation to address the ownership fascination with a well-crafted operating agreement can result in unintended consequences with the business.

While it truly is not practically possible to offer broad advice to members of any LLC, it truly is always a smart and prudent business decision for the those who own any Florida LLC to look at time and incur your little friend cost to consult using a qualified and experienced business lawyer to discover whether an operating agreement is appropriate with the business. By so doing, they could have an agreement that will fit their intent, can evaluate whether any existing agreement fully addresses their intent, can see whether their existing agreement meets the requirements from the Revised Act or identify the provisions that might be included to guarantee the smooth operation with the enterprise. A proper and solid operating agreement for the LLC could go a long way to limiting the expenses of any future dispute where, one example is, a holder wants to leave the LLC, dies, or possibly divorced.