Florida LLC Operating Agreement

What Is a Florida Operating Agreement?

A Florida Operating Agreement is a document used by a business that’s formed as a Limited Liability Company (LLC) in Florida. This document outlines the rules for how the business will run. It includes details like who owns the business, how decisions are made, and how profits and losses are shared.

While Florida doesn’t require LLCs to have this document, it’s a good idea to create one to make sure all the business owners are on the same page and to help protect their personal assets from business debts.

What Should an LLC Operating Agreement Include?

An LLC Operating Agreement should include several key sections to ensure the smooth operation of the business. Here’s what it typically includes:

1. Company Information: The name of the LLC, the main place of business, and the details of its formation.
2. Members and Ownership: A list of the members (owners) of the LLC and their ownership percentages. This usually depends on how much each member has invested in the business.
3. Management Structure: Details about whether the LLC is managed by its members or by a chosen manager or managers. It should also outline the specific responsibilities and powers of the managers and the rights of the members.
4. Voting Rules and Decisions: How the LLC makes decisions. It should include what types of decisions require a vote and how much of a vote (usually a percentage) is needed to approve different kinds of decisions.
5. Capital Contributions: Information on how much money or assets each member has contributed to starting the LLC, and rules about how and when more contributions can be made.
6. Distributions: How and when profits and losses will be shared among members. Unless agreed otherwise, this is usually based on the ownership percentages.
7. Membership Changes: Rules for what happens if a member wants to leave the LLC, sell their share, or if a new member wants to join.
8. Dissolution: The conditions under which the LLC might be closed down, and the steps for winding up its business.
9. Miscellaneous Provisions: This might include how disputes among members will be resolved, rules for meetings, and other general guidelines for managing the LLC.

Do You Need an Operating Agreement

Having an Operating Agreement is recommended for any LLC, even though it’s not legally required in Florida.

This agreement helps outline the operational rules, financial arrangements, and management structure, providing clear guidelines for all members. It also reinforces the limited liability status of the company, which is crucial for protecting personal assets.

Additionally, an Operating Agreement can resolve disputes by providing agreed-upon procedures for handling conflicts.

Do You Have to File an Operating Agreement?

No, you do not have to file an Operating Agreement with any government agency in Florida or most other states. The Operating Agreement is an internal document that you should keep with your business records.

What Does an Operating Agreement Cost?

The cost of an Operating Agreement can vary. If you draft it yourself using a free template, it may cost nothing, but hiring a lawyer to create a customized agreement typically ranges from several hundred to a few thousand dollars, depending on complexity.

Benefits of an LLC Operating Agreement

Most serious businesses with significant capitalization need something more than a free operating agreement to express the participating members’ business relationship. Customized operating agreements are appropriate whenever the members are unrelated partners or when the members are investing significant amounts of money and expect to grow the LLC into a substantially profitable business operation.

An LLC that will elect taxation as a subchapter-S entity requires special provisions in its operating agreement. An operating agreement that is inconsistent with the IRS rules for S-corps may forfeit the S election with adverse tax consequences for the LLC owners.

In-depth operating agreements are also strongly recommended when any LLC member faces creditor or judgment issues to take advantage of customized asset protection provisions.

LLC members—especially unrelated business partners—may wish to discuss the following list of questions, among others, as they start a new business. Their agreed answers to these questions should be included in their Florida LLC operating agreement.

• How much money is each member expected to contribute at the start of operations?
• Which members will contribute additional money if the LLC manager makes a call for additional capital, and what are the consequences for a member does not contribute what they owe to the LLC?
• Are any members required to contribute services in consideration for their right to LLC profits?
• Are any members agreeing to guarantee LLC debt, and if so, how are these members compensated for this risk?
• Who decides whether the LLC can afford to distribute cash flow to the members?
• Are any members entitled to priority return of capital or a priority share of profits until they receive the return of all or a percentage of their initial investment?
• Do members agree to non-compete and confidentiality provisions?
• If one of the members wants to retire from the LLC business, is the LLC or are the remaining members required to pay the retiring member for their LLC interest? If so, what is the value of the retiring member’s interest?
• What happens if one of the members can no longer work in the LLC business or contribute additional money because of the member’s death or physical disability?
• What are the consequences of a particular member being involved in a divorce or other type of legal proceeding where a court may issue an order affecting that member’s rights and financial interest in the LLC?
• Will the LLC elect to be taxed as a S-corp?

The above list is only a sample representation of the legal and financial issues people should consider when they start a new business. It is easier for LLC members to resolve these issues before starting their LLC business than to fight over the issues as they come up in the course of an already busy and profitable business.