If you are researching what needs to be done so that you can start your own business, congratulations! That’s an exciting adventure that you’re embarking upon. Chances are that you’ve already heard about the potential benefits of structing your new business as a limited liability company (LLC). But are you aware of the need to craft an operating agreement for this business type?
An operating agreement is a legal document that should outline the management structure, ownership rights and operational procedures of your new business. While Florida does not require LLCs to have an operating agreement, having one in place is highly advisable for anyone planning to start a business. There are several reasons why this document is so potentially consequential, regardless of the fact that it’s not a legal requirement.
Why make this effort?
A standard operating agreement specifies the percentage of ownership each LLC member holds and outlines how profits and losses will be divided. Without a written agreement, Florida state laws may dictate how ownership and management decisions are handled, which may not align with each member’s understanding and/or intentions.
In addition, a standard operating agreement sets the framework for how a new company will be managed. Owners can choose between a member-managed structure, where all members participate in day-to-day operations, or a manager-managed structure, where one or more managers handle operations on behalf of the members. Clearly defining a management structure can help to prevent disputes later on.
Also, an operating agreement – if properly structured – can help to facilitate an LLC’s limited liability protection. Without an operating agreement, there may be a greater risk that the courts could “pierce the corporate veil,” in the event of a lawsuit. This means that members could be held personally liable for their business’s debts or legal claims. A well-drafted operating agreement demonstrates that an LLC is a distinct legal entity, separate from its members.
For all these reasons and more, it is generally very wise to have an operating agreement in place before commencing operations as an LLC company in Florida.