5 Reasons Your Florida LLC Needs an Operating Agreement

5 Reasons Your Florida LLC Needs an Operating Agreement

Too many Florida LLC owners mistakenly think that they’ll be fine without an operating agreement. While not required by Florida state law, an operating agreement is fundamental to protecting your business from many worst-case scenarios. It’s a good way to address many other parts of running your business, too, and to codify the rules governing its management. Here are the five strongest reasons why our firm believes every Florida LLC needs an operating agreement, no matter its size or industry.

Limited Liability Protections

Unfortunately, forming an LLC with the state of Florida isn’t enough to protect the company’s members from personal liability. Florida courts sometimes declare single-member LLCs to be sole proprietorships because of errors made during the formation process or improper management. Multi-member LLCs aren’t safe, either. They can lose their liability shield if they don’t separate the business from the individual members by doing things like keeping separate business and personal bank accounts. Your Florida LLC needs an operating agreement drafted by an attorney to help prevent these situations by cementing the business as its own distinct entity, as well as codifying rules for how the business should be managed and how the members should conduct themselves. It’s also a great way to keep all the LLC’s owners on the same page.

Disagreement Prevention and Resolution

Most business partners decide to join forces because they work well together, share a common vision, and enjoy each other’s company. However, the relationships you have with your fellow LLC members are no different from the relationships in your personal life. That means that they’re just as subject to change under the right conditions. Small disputes can snowball out of control fast, and in order to fully prepare for these situations, your Florida LLC needs an operating agreement. Even without major conflict, disagreements regarding management or other routine manners can slow your operations down and sow resentment. Make sure to ask your attorney to include measures to help reduce potential conflict and to provide plans for reconciliation in your operating agreement.

How to Handle an Exiting Member

Should conflicting members find themselves unable to reconcile with each other, one of them might need to exit the company for the good of all involved. However, this can cause more issues for the LLC than might be expected. Your Florida LLC needs an operating agreement because, without one on hand, an exiting partner could force a multi-member LLC to revert to a single-member LLC. This can come with painful tax ramifications in addition to potentially doubling the remaining member’s workload. It can also force the LLC to dissolve entirely in certain situations. The LLC might also have to buy out the former member’s interest in the company, which can lead to a court battle if a settlement can’t be agreed upon.

What to Do in Case of Divorce

A divorce is one of the hardest things that any two people can experience. It can have major consequences if one of the spouses is the member of an LLC. This goes beyond having a partner that’s stressed out and preoccupied with their domestic life. Typically, membership interest in an LLC is treated as marital property unless otherwise stated in the operating agreement. This means that the member’s former spouse could wind up as an owner in the company, complete with voting rights. You can see where this can get messy fast for everyone involved, and it’s another reason why your Florida LLC needs an operating agreement. By having provisions for divorce, you can help keep an already painful situation from impacting your LLC.

In Case of Death

Like divorce, death is something that no one wants to think about, let alone plan for, but it’s another reason that your Florida LLC needs an operating agreement. There will be a lot of questions from both your fellow members and the family of the deceased. Should the company buy out the surviving spouse? Or should they take over the deceased’s position as a voting member of the LLC? What happens if the LLC lacks the capital to buy out the spouse? A well-drafted operating agreement from an experienced business attorney does a lot to answer these questions before they come up. It’s an instrumental document to preparing your LLC to survive this and many other worst-case scenarios.

A lawyer-drafted operating agreement goes a long way to protecting a Florida LLC from potential liability and member disputes. Now that you understand why your Florida LLC needs an operating agreement, order yours today or have a previously drafted operating agreement reviewed by our corporate attorney by visiting our service page or giving us a call at (727) 279-5037.