Most businesses in Florida are closely held 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 form an attorney-client relationship; it 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 a little over twenty years ago. Previously, Chapter 608 of the Florida Statutes controlled LLCs and provided a limited amount of guidance to Florida business owners and courts. Unfortunately, the many default provisions found in the Florida Corporate Code did not appear in the old LLC Chapter. This all changed with the enactment of the revised LLC Law in Chapter 605, which became effective on January 1, 2014. After January 1, 2015, it applies to all LLCs in Florida. Therefore, without specific provisions in an operating agreement governing the operation and dissolution of an LLC, LLC owners will inadvertently find themselves in situations they did not originally intend. A proper operating agreement may also encompass the benefits of the revised LLC Law.
That being 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-person and multi-person. While a well-crafted operating agreement can never be detrimental to an LLC, it may be one that a single-member LLC can save, depending on its circumstances.
An operating agreement can be thought of as the contract between members of an LLC that governs issues such as how members can leave the entity and what rules apply to the addition of new members, if any. 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 may be a very wise business decision. Without identifying answers to specific situations that may arise, such as the departure or death of a member, a dispute may arise between members that cannot be resolved quickly or easily by a Florida court. Even for specific events like the valuation of member interests, members of a multi-member LLC may not want to accept legal default and are better off applying their own method of dealing with that situation.
A secondary consideration is whether to seek a pre-formatted, fill-in-the-blank operating agreement or hire a competent and experienced business attorney to prepare that document. Naturally, such a choice is a business or management 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 needs. unique. Well. The savings gained by purchasing a pre-formatted operating agreement may result in substantially increased expenses later if a dispute develops, which is likely not adequately provided for or covered by the stock operating agreement.
In the summer of 2010, the Florida Supreme Court addressed the ownership of LLCs 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 trial, even if the trial has nothing to do with the LLC. In response, the Florida Legislature amended the old LLC Statutes to clarify that a member’s interest in a multi-member LLC could not be garnished by judgment and the member’s right could only be attached to a distribution from the LLC. . The revised LLC Law expanded that, particularly for a multi-member LLC, failure to address ownership interest in a well-crafted operating agreement can have unintended consequences for the business.
While it is not practically possible to provide extensive 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 a small cost to consult with a qualified business attorney. and with experience. to determine if an operating agreement is appropriate for the business. By doing so, they may have an agreement that matches your intent, can assess whether any existing agreements fully address your intent, can determine if your existing agreement meets the requirements of the revised Act, or identify provisions that can be included to ensure fluidity. . Operation of the company. A proper and strong operating agreement for an LLC can go a long way in limiting the costs of any future disputes where, for example, an owner wants to leave the LLC, dies, or gets divorced.