7 Critical Clauses for a Florida Operating Agreement

7 Critical Clauses for a Florida Operating Agreement

7 Essential Terms for a Florida Operating Agreement

A limited liability company’s Operating Agreement is its primary governing document, much like a corporation’s bylaws. Too many companies don’t have Operating Agreements. This is a bad idea. You want an Operating Agreement for your Florida LLC. Don’t worry if you don’t know what it needs to include – we’re going to go over the most important parts of a Florida Operating Agreement for you below.

1. Classes of Membership Interest

LLC ownership – more commonly known as LLC Membership – is expressed in “membership interest.” Membership interest works similarly to how stock works in a corporation, but with more flexibility. Unlike a corporation, an LLC can have different classes of membership interest. Different classes of membership interest can give members different rights within the company. Your Florida Operating Agreement should specify each class of membership interest as well as the rights that said interest comes with.

For example, let’s say that an LLC has two classes of membership interest – common and preferred. Both would signify ownership in the company. However, preferred interest might grant five votes to a given Member while common would grant just one.

2. Profits, Losses, and Distributions

Your Florida Operating Agreement should also address how to divide the company’s profits and losses among the Members. Unlike a corporation, the cut a Member receives of these profits and losses don’t need to match up perfectly with their initial contribution if the Members agree to it in the Operating Agreement.

A Florida Operating Agreement can also cover the LLC’s distributions. Like most aspects of an LLC, you have more available options here than a corporation would. Not only can you set forth the frequency and amount of the distributions, but you can add other conditions, too. These include handing control of the distributions over to the LLC’s management, introducing specific trigger events, and whether there will be both required and discretionary distributions.

3. Management of the LLC

You’ll also decide on your LLC’s management in your Operating Agreement. In Florida, this means deciding between a Member-Managed or a Manager-Managed LLC. Member-Managed LLCs are run by one or more Members. Manager-Managed LLCs, on the other hand, are run by one or more Managers chosen by the Member(s), similar to an employee.

In addition to the management style, your Florida Operating Agreement will dictate the duties, responsibilities, and any limitations placed on said management. It’s smart to include provisions for the removal and replacement of managers here, too. You might get along great with your fellow Members and/or managers now, but there’s no telling what disputes might arise down the line.

You can learn more about LLC Management Structures on our blog here.

4. Fiduciary Duties and Responsibilities

By default, members of an LLC formed in the state of Florida have fiduciary duties of care and loyalty. This means that they must act in the best interests of the company and their fellow Members. However, the company can waive or modifiy these responsibilities. This is going to be an important part of your Florida Operating Agreement if there is any infighting among the Members that lead to litigation.

5. Raising Additional Capital & Adding New Members

A limited liability company will sometimes require additional funding from its Members as time goes on. Plan for this possibility by having a process in your Florida Operating Agreement for accepting new capital contributions from the Members. Here you can specify if these contributions will be mandatory, optional, or if they first need a vote of approval.

It’s also not uncommon for a limited liability company to take on new Members, either by choice or by necessity. By having a procedure for admitting new members into the company, you save yourself the trouble of scrambling if one of the other Members quits unexpectedly or is otherwise unable to move forward as one of the business’s owners.

6. Transfer of Membership Interest or Withdrawal

You can help prevent disaster by planning for Members who want to transfer or fully withdraw their interest. As discussed above, membership interest measures ownership in an LLC. Your Florida Operating Agreement should cover situations where a membership transfer is allowed and how to do it.

If Members want to be able to withdraw from the LLC, it needs to be stated in your Operating Agreement. Include any conditions or restrictions on the right to withdraw here, too. It’s also smart to include a right of first refusal for the other Members should one wish to transfer or withdraw their interest. This allows the remaining owners of the company to purchase the transferred or withdrawn interest for themselves.

7. LLC Dissolution

When you’re first starting out, it’s easy to imagine that your LLC will last forever. However, your Florida Operating Agreement is no place for optimism. You’ll want to plan for the worst, no matter how unlikely. This means that your Operating Agreement should contain provisions on ending the business in case of a dissolution.

Your Operating Agreement should explain in detail what events can trigger a dissolution of the limited liability company, as well as how to split up the LLC’s assets after concluding business. Failure to do so can result in a lot of confusion and conflict, to put it mildly. For more, a general overview of the LLC dissolution process can be found here.

A lawyer-drafted Operating Agreement goes a long way to protecting a Florida LLC from potential liability and Member disputes. To order yours today, or to have a previously drafted Operating Agreement reviewed by our corporate attorney, visit our service page or give us a call at (727) 279-5037.

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