In most states, including Florida, it is not required for a Limited Liability Company (“LLC”) to have an Operating Agreement, but it is always recommended to create one. The reasons are several, as we shall see below. In particular, if you are looking to create any company in Florida, it is highly recommended to seek legal services in Florida from a Florida business lawyer who will be able to guide you and assist you through the process, as well as advice you on the legal protections and benefits of having an LLC or any other legal entity.
First of all, what is an Operating Agreement? It is a document in which the structure and rules of an operation are defined. An Operating Agreement does not need to be filed with any Florida governmental entity, but it is an agreement or contract retained by the owners of the LLC (called members). The Operating Agreement can regulate, for example, how decisions are made, what the rights and duties of its members and managers are, how accounting will be done, the withdrawal of members, and penalties for breaches of specific events. LLCs are extremely flexible entities thanks to the Operating Agreement.
When there is no Operating Agreement, the rules established by the Florida Statutes, or the default rules for LLCs of the State, will apply. These are generic rules that are intended to encompass a wide variety of cases, and therefore are not optimized for the needs of a specific company. Also, when these rules are not specified in writing, the law provides that the Operating Agreement may be oral, implied, or recorded in any medium. This can lead to different interpretations, misunderstandings and conflicts between members, which may then be difficult to resolve.
The Operating Agreement is also important to protect the limited liability status. The Operating Agreement may be used in court as evidence of the corporate structure, and of the rules and regulations that apply to the specific LLC.
The scope of an Operating Agreement is codified in Chapter 605 of the Florida Statutes, which authorizes some provisions unconditionally, and others as long as they are “not manifestly unreasonable.” For instance, the Operating Agreement could prevent some events from triggering appraisal rights. In some transactions, such as mergers, sale of all assets of the company, or change to a different kind of entity, dissenting members have, by default, the option to sell to the LLC their membership interest at a fair value. An Operating Agreement can regulate several of these situations.
There are other provisions, however, that cannot be waived, such as judicial dissolution or unreasonably restricting the rights of members to initiate legal proceedings against the LLC or against other members or managers. Some Florida business lawyer have stated that one of the most important non-waivable provisions is the obligation and duty of good faith and fair dealing; however, the Operating Agreement can set standards for meeting these obligations, provided they are “not manifestly unreasonable.”
Finally, having an Operating Agreement is a sign of seriousness of a company, which may facilitate, for example, access to loans, angel capital, and investors; or may be required for other purposes such as immigration visas. For all these reasons, it is essential to have an LLC Operating Agreement adapted to the needs of the company and its members to ensure optimum performance and avoid unpleasant surprises.
Nico Apfelbaum, Esq. is the managing attorney of Apfelbaum Law, a Florida law firm serving Port St. Lucie, Stuart, the Treasure Coast and assisting clients with matters throughout Florida. Apfelbaum Law provides a wide variety of legal services, including, family law, divorces, business and contract transactions and litigation, immigration, wills and estate planning, probate law, and real estate law. If you are a member of an LLC or are considering establishing one, Apfelbaum Law has Florida licensed business lawyers who can advise you through the process of selecting a legal entity, creating such and drafting the corresponding Operating Agreement that will better protect your investment, responsibility and rights. The attorneys of Apfelbaum Law will answer your questions, explain your options, and provide you with the tools and resources you need to make an informed decision.