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 only to provide general information on this important and far-reaching topic.
By way of background, an LLC is something of a hybrid between a partnership and a corporation and was specifically authorized under Florida law a little over twenty years ago. Previously, Chapter 608, 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 Corporation Code did not appear in the old LLC Chapter. All of this changed with the enactment of the revised LLC Law in Chapter 605, which became effective January 1, 2014. After January 1, 2015, it applies to all Florida LLCs. Therefore, without specific provisions in an operating agreement governing the operation and dissolution of an LLC, LLC owners will unintentionally find themselves in situations they did not originally intend. A proper operating agreement may also encompass the benefits of the Revised LLC Law.
That 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; single-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 salvage, depending on its circumstances.
An operating agreement can be thought of as the contract between the members of an LLC that governs such issues as how members can leave the entity and what rules apply to the addition of new members, if any are allowed. 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 can be a very wise business decision. Without identifying responses to specific situations that may arise, such as the departure or death of a member, a dispute may arise between members that a Florida court cannot quickly or easily resolve. Even for specific events such as the valuation of members’ interests, members of a multi-member LLC may not want to accept the legal breach and are better off applying their own method of dealing with that situation.
A secondary consideration is whether to pursue 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. good. The savings realized by purchasing a pre-formatted operating agreement may result in substantially increased expenses later if a dispute develops, which may not be adequately anticipated or covered by the stock operating agreement.
In the summer of 2010, the Florida Supreme Court addressed LLC ownership 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 judgment, even if said judgment 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 seized by judgment and only the member’s right could be attached to a distribution of the LLC. . The revised LLC Law expanded that, particularly for a multi-member LLC, failure to address the ownership interest in a well-crafted operating agreement can have unintended consequences for the business.
While it is not practically possible to provide comprehensive advice to members of an LLC, it is always a smart and prudent business decision for owners of any Florida LLC to take the time and incur little 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 can have an agreement that matches their intent, they can assess whether any existing agreement fully addresses their intent, they can determine if their 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.