One of the hallmarks of adulthood is that you willingly do certain things that are good for you even if you don’t really want to – or you don’t even have to. The same can be said about strong leaders and successful entrepreneurs. These men and women are not only willing to take calculated risks, but also to take extra steps to protect and grow their businesses from the beginning. In many cases this includes creating an operating agreement for a limited liability company (LLC).

An operating agreement is simply a comprehensive plan made orally or in writing that is approved by all of the LLC members. As such, it specifies the management of business operations and finances. In Florida, having one isn’t mandatory, but it’s certainly a good idea if you want to be successful. Here’s a quick look at the key benefits of having an operating agreement for your LLC.

Added insurance in case of litigation

One of the single most important benefits of implementing an LLC operating agreement is that it affords valuable protection if your business is sued. It does so by helping the court to recognize that your business meets the legal definition of an LLC and to sustain your limited liability protection as an owner.

This is extremely important if you established your LLC as a single individual, because it allows the court to distinguish your business from a sole proprietorship. As a sole proprietor, you would not have the same protection from liability afforded to an LLC.

Quick resolution of disagreements

Disagreements are bound to occur in any business setting, but if left unchecked, they can easily become costly and time-consuming disputes. Depending on the scope of an LLC operating agreement, it can serve as a useful “dispute resolution tool” in numerous circumstances.

For example, a detailed LLC operating agreement can help address conflicts over:

  • Management and structure (individual responsibilities)
  • Ownership (how much of the LLC each member owns)
  • Profits and losses (how they are allocated and who gets what)
  • Voting rights (whether votes can be cast according to the number of members or their ownership percentage)
  • Change in ownership (in the event that a member dies, becomes disabled or simply wants to sell his/her stake in the business)

The ability to take and maintain control of your business

By creating an operating agreement for your LLC, you (and the other members) are establishing control over how you want your business to be operated (ideally from the outset). Once it is in place, you can continue to run the business accordingly as long as you are in compliance with all applicable local, state and federal laws.

Conversely,  in the absence of an operating agreement, the rules created by applicable statutes, or the default rules for LLCs of the State kick in. The trouble here is that these are extremely broad and may not meet your company’s unique needs. In Florida, if you operate your LLC without an operating Agreement, you automatically adopt the Florida Revised LLC Act. Creating your own operating agreement, however, allows you to create your own operating rules and supersede the Act.

Validity

In the business world, having an operating agreement for your LLC provides credibility. This in turn creates opportunities that may not have materialized otherwise. For example, you may find it easier to attract investors or secure startup capital. You may also find that it allows you to hire more people because you are able to secure immigration visas.

Take our advice

Now that you know the upside of having an operating agreement for your Florida LLC, you may be tempted to draft an operating agreement on your own. While it is certainly possible to do so, we always recommend consulting with an experienced business attorney before drafting any legal document. While it may seem like a hassle initially, this important step can save you time and money in the long run.

At Eskander Loshak LLP, we have a proven track record of helping clients achieve their business goals throughout South Florida and beyond. Contact us online or call us at (954) 334-1122 to learn how we can help you today.

Disclaimer