An LLC operating agreement is a legal document that outlines ownership and member duties, helping your business avoid conflicts in the future. Here's what else to know about it.
- An LLC operating agreement is an important company document.
- These agreements vary based on industry and organizational structure.
- Using an attorney to help you draft one streamlines the process.
- PeytonBolin includes an operating agreement in its Florida LLC Creation package.
An LLC operating agreement isn't mandatory in Florida, but it's highly recommended because of the structure it creates within your organization. This document defines the financial and working relationships between the business's owners and serves as a legal contract between the parties, and drafts differ based on industry and a company's specific needs. Having a lawyer put the document together is thus advisable to ensure the paperwork addresses all the necessary points.
There are other perks to using an LLC operating agreement, though. Your attorney can use this document to customize your organizational structure, secure your liability protection, and avoid the Florida Statutes' default LLC rules, for example. You might even consider investing in an LLC operating agreement if you're the company's sole owner because the document makes it easier to sell the business or bring in new investors later.
Here's a look at some key topics every LLC operating agreement should cover.
The types of information included in your LLC operating agreement differ based on your industry and specific operational needs, but there are some things many drafts have in common. They might begin with some basic business information, such as:
- Your company's legal name
- Any doing business as (DBA) names you're using
- The company's address
- The organization's registered agent
- A couple of lines regarding the company's industry, purpose, and product or service
- An additional line permitting the company to engage in any lawful purpose (so you can expand later without creating a new agreement)
- A statement of intent
- The duration of the business
- Your tax treatment
The organization's tax treatment will determine how members are taxed, as each owner is – by default – taxed on their personal return based on their share of the company's profits.
Most LLC operating agreements will include a section defining the members and the structure of the ownership group. This stage will involve adding every partner's name and contact information to the document. When a company has multiple owners, this passage will also report if they have an equal or unequal ownership statuses. One partner could own 51% of the business, for example, while other partners equally split the remaining 49%.
Business management and voting
Ownership is only part of the equation, though, as an LLC operating agreement in Florida should outline who manages the company and how much authority other members have over organizational decisions. The business might hold votes when making these decisions, and the operating agreement might allocate these ballots to members in different ways. The document could ensure every partner has equal voting rights, for example, or provide more votes to members with a more significant stake in the company. It all comes down to what the owners agree upon when writing the LLC operating agreement.
A section examining capital contributions is essential because it outlines which members provided money to start the LLC in the first place and how much they contributed. The document might have a mechanism for ensuring these individuals recover that initial investment or provide additional ownership units in exchange for this cash. It might also mention how the organization will raise additional money when necessary. Coming up with this capital could involve cash calls, seeking new investors, or selling company assets, to name a few options.
Distribution of company profits
The goal when starting a company is to make money, but your LLC operating agreement should discuss how the organization will distribute those earnings. A few things to keep in mind:
- Distributions could include monetary profits.
- Your LLC operating agreement should define how members will split physical property and other assets.
- There could also be company losses that members will have to split.
Member compensation is another vital aspect to include in your agreement. Some organizations will only award distributions based on ownership interest when the business makes money. Others give members an upfront salary. It all depends on the organization.
Adding or removing members
Your LLC operating agreement should include language on the process for admitting new members or allowing existing members to exit. The company might require a vote to allow this to happen, but there should be an overview of how the process works. The agreement should address various hypothetical situations to ensure a smooth transition:
- What happens if a member wishes to sell their stake?
- Does the rest of the ownership group have to approve the buyer?
- What happens when a member dies, and an heir with no business experience inherits their interest?
- What if an owner goes through a divorce and must liquidate?
There are many scenarios to consider when adding or removing members, but your LLC operating agreement will simplify the process by ensuring there's a protocol to follow.
Finally, your LLC operating agreement should cover the dissolution of the company and outline when the company must dissolve. Ending an LLC is an often lengthy procedure that involves filing all the necessary documentation with the state's government, liquidating assets, and paying creditors. Members will usually vote to start a dissolution, but putting the policy in writing will keep the process smooth.
Get the legal help you need
You'll want to ensure your LLC operating agreement covers all the topics relevant to your company to prevent future disagreements between members. Outlining this information in a single legal document can keep the business on track and avoid conflict.
PeytonBolin can provide you with an operating agreement as part of our Florida LLC Creation package. Through this package, one of our experienced attorneys will file all the necessary paperwork with the state while creating an LLC operating agreement outlining how the business will operate.
Contact our team today to learn more about LLC operating agreements and how our Florida LLC Creation package can help your company.