An operating agreement is a foundational document for an LLC, or limited liability company. The contents of your business’s operating agreement should accurately reflect the way your business functions as well as providing important liability protections. These documents guard against disputes arising between business managers, which can be time-consuming and costly to resolve.
When setting up your LLC, much of the effort will center on creating your operating agreement with an experienced business attorney. Your attorney will provide solid guidance on every aspect of your business incorporation. A tightly-written operating agreement is a roadmap to a successful future.
What Your Operating Agreement Should Include
The operating agreement is the governing document of your company; it is the framework for the structure and function—and will limit your exposure to liability. Without an operating agreement specifically outlining and including LLC functions, state statute is substituted, and that may not conform to your business’s structure or intentions of its founders.
Florida treats operating agreements as legally binding despite the documents not being formally filed with the state. Courts often uphold the roles and responsibilities defined in the operating agreement, as they form the contractual basis for member and manager relationships.
Be sure that your operating agreement contains the following elements:
- Basic information. Start with the company name, address, and a statement of purpose.
- Owners and members roles. What are the ownership percentages, what is owned and by whom, where capital is sourced, and how records are kept.
- Management structure. How is the business managed, by members, or by managers? How is voting handled? All should be codified in this document.
- Allocations and distributions. Does the company use cash or tax distributions for profits or losses?
- Transfers and buy/sell. Enumerate restrictions on transfers, buyouts, valuation methods, etc. as well as events that trigger the buy/sell.
- Fiduciary duties and conduct standards. Outline which members or managers owe fiduciary duties, when safe harbor conditions are met and how they are handled, circumstances for indemnification and insurance. Courts allow some modifications of these duties but nothing that is “manifestly unreasonable.”
- Taxes. Who will represent the business in tax matters? How are taxes distributed, liabilities covered, and capital accounts treated?
- Dispute resolution and dissolution. Is there a mandatory mediation clause? What triggers dissolution of the business? How will buyouts be handled?
- Accounting, banking, and financial authority. Describe the schedule and requirements for financial reporting, who may sign checks, and how audits should be handled.
- Making amendments and other clauses. Which rules govern making changes to the operating agreement? Which clauses should survive dissolution?
Legally, operating agreements are contracts that can be held as the grounds for corrective action or penalties. Breach of contract claims can arise from situations in which members of an organization fail to uphold the roles described in the document.
In the absence of a written operating agreement or any sort of oral contract, Florida’s default Revised Limited Liability Company Act is used by courts to settle issues in the absence of an operating agreement or when an existing agreement is silent on a matter. The law can differ significantly from a business’s intended practice, such as by requiring that profits are split equally regardless of capital contributions. The statute is also used when operating agreements (written or oral) direct managers to act fraudulently, illegally, or in a manifestly unreasonable manner.
Learn More About Your Rights and Responsibilities
Operating agreements are not just legal formalities, they are practical tools. Having clear, enforceable rules in place protects the business and its members when disputes arise. The experienced business attorneys at WKFK Law have decades of expertise in crafting legally-sound operating agreements. These documents will serve your company well, providing a roadmap of responsibilities that can lead to success and growth.
