Most companies in Florida are limited liability companies (LLCs), so the question often arises as to whether these entities really need an operating agreement. This article is not intended to provide legal advice or to form an attorney-client relationship; is intended solely to provide general information on this important and profoundly impactful topic.
By way of background, an LLC is something of a hybrid between a partnership and a corporation and was specifically authorized by Florida law just over twenty years ago. Previously, Florida Statutes Chapter 608 controlled LLCs and provided a limited amount of guidance to business owners and the Florida Courts. Unfortunately, the many default provisions found in the Florida Corporate Code did not appear in the old LLC Chapter. All of this changed with the enactment of the revised LLC Act in Chapter 605, which went into effect on January 1, 2014. After January 1, 2015, it applies to all Florida LLCs. Therefore, without specific provisions in an operating agreement governing the operation and dissolution of an LLC, LLC owners will unwittingly find themselves in situations that they did not originally intend. A proper operating agreement can also encompass the benefits of the revised LLC Act.
That said, the expense of an operating agreement prepared by an experienced business attorney is not necessarily necessary in all cases. LLCs can be divided into two categories; one member and several members. While a well-crafted operating agreement can never be a detriment to an LLC, it may be one that a single-member LLC can salvage, depending on your circumstances.
An operating agreement can be thought of as the contract between the members of an LLC that governs issues such as how members can leave the entity and what rules apply to the incorporation of new members, if any are allowed. So in the case of a single-member LLC, it may not be a necessity, but in the case of a multi-member LLC, it can be a very wise business decision. Without identifying responses to specific situations that may arise, such as the departure or death of a member, a dispute may arise between members that cannot be easily or easily resolved by a Florida court. Even for specific events such as membership interest assessment, members of a multi-member LLC may not want to accept statutory breach and are better off using their own method of dealing with that situation.
A secondary consideration is whether to seek a preformatted and fill in the blanks operating agreement or to hire a competent and experienced business attorney to prepare that document. Naturally, such a choice is a commercial or administrative decision; however, an operating agreement that is not tailored to the unique needs of an LLC by someone who understands the issues that arise and are typically the subject of lawsuits will not address those unique needs very well. Savings from purchasing a preformatted operating agreement can result in a substantial increase in expenses later if a dispute develops, which is likely not anticipated or adequately covered by the stock operating agreement.
In the summer of 2010, the Florida Supreme Court addressed LLC ownership in its Olmstead decision. The Florida Supreme Court confirmed that an individual’s membership interest in an LLC is a property right that is subject to a judgment, even if that judgment has nothing to do with the LLC. In response, the Florida Legislature amended the old LLC Bylaws to clarify that a member’s interest in a multi-member LLC could not be taken with a judgment and only the member’s right could be attached to a distribution from the LLC. . The revised LLC Act expanded that, particularly for a multi-member LLC, inattention to the ownership interest in a well-crafted operating agreement can lead to unintended consequences for the business.
While it is not practically possible to provide comprehensive advice to LLC members, it is always a wise and prudent business decision for owners of any Florida LLC to take the time and incur the small cost of consulting with a qualified business attorney. and with experience. to determine whether an operating agreement is appropriate for the business. By doing so, they can have an agreement that matches their intention, they can assess whether any existing agreement fully addresses their intention, they can determine whether their existing agreement meets the requirements of the Revised Law, or identify provisions that can be included to ensure fluidity. Operation of the company. A sound and sound operating agreement for an LLC can be very helpful in limiting the costs of any future disputes where, for example, an owner wants to leave the LLC, dies, or gets divorced.