Complete Guide to the Florida LLC Operating Agreement

What Is an Operating Agreement?

An operating agreement defines how your LLC is managed. It outlines member roles and sets rules for internal operations. An operating agreement protects LLC owners from liability stemming from the company operations.

Florida LLC operating agreements are used to:

• Specify management roles
• Outline profit distribution.
• Protect the assets of the members.
• Establish rules for member changes and disputes.
• Prevent creditors of LLC members from interfering with the business.

Do You Need an Operating Agreement in Florida?

An operating agreement is not legally required for an LLC in Florida, but it is highly recommended for both single-member and multi-member LLCs.

For single-member LLCs, an operating agreement helps establish the LLC as a separate legal entity, protecting the owner’s personal assets.

For multi-member LLCs, it outlines ownership percentages, profit distribution, and decision-making processes, reducing the likelihood of disputes.

LLCs without operating agreements are governed by default rules and regulations of the Florida Revised Limited Liability Company Act. The default statutory rules may not be appropriate in LLCs involving unrelated members or LLCs with a particular legal goal such as asset protection. Provisions in an LLC operating agreement supersede corresponding statutory default rules.

A properly drafted LLC operating agreement demonstrates the seriousness of the LLC business and avoids unanticipated consequences imposed by the statutory default LLC provisions. Members may customize their operating agreement as they wish to express their business relationship, provided, however, that Florida statutes do not permit operating agreements to waive some member rights, obligations, or protections.

What Should an Operating Agreement Include in Florida?

• Identification of all LLC members.
• Designation of management structure between member-managed or manager-managed.
• The duties to contribute money or services to the LLC.
• The economic interests in LLC property and profit.
• Provisions for the distributions to members of LLC profit.
• Voting procedures and voting requirements for LLC decisions.
• Transferability of LLC interests to third parties.
• Responsibility and extent of authority of the LLC manager.
• Outline of how the LLC winds down its business.
• Various customized provisions that solidify the asset protection benefits provided by Florida’s LLC laws.

How LLC Operating Agreements Work

Operating agreements govern how LLCs manage business decisions, profits, and member changes. They become effective once all members sign the document. They offer flexibility to tailor management rules, profit distribution, and decision-making to suit the LLC’s needs. Operating agreements not only guide the day-to-day operations of an LLC but also serve as a tool for long-term planning, clarifying roles and expectations, and minimizing conflicts among members.

These agreements can limit a creditor’s ability to reach a member’s interest in the LLC. If a creditor gest a judgment against an LLC member, the creditor can obtain a lien on that member’s LLC distributions. However, a well-drafted LLC operating agreement can prevent the creditor from forcing distributions to the LLC member, even while allowing the member to receive money from the LLC in other ways.

Customized Operating Agreements

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.

A customized LLC operating agreement can help protect the assets of the LLC when an LLC member faces creditor or judgment issues.

A customized Florida operating agreement should include answers to the following questions:

• 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 a 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?

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.

Advantages of LLC Operating Agreements

• Legal Protection: Reinforces the separation of personal and business assets, supporting limited liability protection.
• Operational Clarity: Establishes clear roles and decision-making processes, reducing the likelihood of disputes.
• Flexibility: Allows members to customize terms, unlike state default rules.
• Credibility: Enhances the LLC’s credibility with banks, investors, and partners.

Disadvantages of LLC Operating Agreements

• Complexity: Drafting an agreement can be complex, requiring legal expertise to ensure comprehensive coverage.
• Potential Conflicts: If not drafted properly, the agreement could cause misunderstandings or fail to address critical issues.
• Cost: Professionally drafted agreements involve legal fees, making them more expensive than templates.

Can You Use a Free LLC Operating Agreement?

A free LLC operating agreement can be a good idea under the following circumstances:

• The LLC is a family business without creditor concerns, and all family members work well together.
• The LLC members trust each other to amicably compromise business disagreements.
• All LLC members are contributing equal money and are sharing both losses and profits equally.
• The amount of capital investment is relatively small, and members do not anticipate that the LLC will grow into a large or complicated business.
• The members are unconcerned about the asset protection of their LLC membership interests from their individual creditors.

How to Amend an Operating Agreement in Florida

1. Check the current operating agreement for any provisions about amendments, such as required voting thresholds or procedures.
2. Draft the amendment outlining the proposed changes.
3. Obtain member approval as required by the agreement.
4. Sign the amendment with all members’ signatures.

Frequently Asked Questions

Do you have to file a Florida LLC operating agreement?
No. Florida law does not require LLC operating agreements to be filed. An LLC operating agreement is a private contract among the LLC members. The general public cannot search or view an LLC’s operating agreement.

Can a single-member LLC have an operating agreement?
Yes, it helps maintain limited liability by distinguishing business activities from personal ones. It also can document who the owner is of the LLC.

What happens without an operating agreement?
The LLC will be governed by Florida’s default rules, which may not align with the members’ intentions.

Can an operating agreement be changed?
Yes, amendments can be made with the consent of all members and the manager.