The majority of firms in Florida are tightly owned limited liability corporations (LLCs), and as a result, the topic of whether these entities actually require an operating agreement arises frequently. Background information: An LLC is a combination between a partnership and a corporation that was particularly recognized under Florida law a little more than two decades ago, and it is a type of limited liability company. LLCs were previously governed under Chapter 608 of Florida Statutes, which gave only rudimentary direction to business owners and the state’s courts. This has changed. Unfortunatley, the many default clauses present in Florida’s Corporate Code were absent from the previous LLC Chapter.
This all changed with the passage of the Revised LLC Act, which was codified in Chapter 605 and became effective on January 1, 2014. After January 1, 2015, it will apply to all Florida limited liability companies. As a result, without precise provisions in an operating agreement to control the operation and dissolution of an LLC, LLC owners may find themselves in positions that they did not expect to be in when they formed the LLC. The benefits of the Revised LLC Act can also be included into a properly drafted operating agreement. Having said that, the expenditure of having an operating agreement established by an experienced business attorney is not always necessary in every situation. A single-member LLC is distinguished from a multi-member LLC, which is distinguished by its number of members.
While a well-drafted operating agreement can never be a liability for a limited liability company, it may be one that a single-member LLC can use to its advantage, depending on the situation. It is possible to think of an operational agreement as a contract between the members of a limited liability company that governs matters such as how members can leave the business and what regulations apply to the addition of new members, if any, to the firm. As a result, while it may not be necessary in the case of a single-member LLC, it may be an excellent business option in the event of a multi-member LLC. Members may develop a disagreement if there are no clear replies to certain events that may arise, such as the departure or death of a member, which a Florida court will not be able to handle quickly or efficiently.
When it comes to certain occurrences, such as the value of a membership interest, the members of a multi-member LLC may not want to accept the statutory default and may be better served to devise their own manner of dealing with the problem. A secondary consideration is whether to use a pre-formatted, fill-in-the-blanks operating agreement or whether to hire a skilled and seasoned business lawyer to construct that contract for your company. Naturally, such a decision is a matter of business or management; however, an operating agreement that has not been tailored to the specific needs of a limited liability company by someone who is familiar with the issues that arise and are frequently the subject of lawsuits will fall short of meeting those specific requirements.
Purchasing a pre-formatted operating agreement can result in significant savings now, but it can also result in significant expenses later if a disagreement arises that was not foreseen or appropriately addressed by the stock operating agreement. In its Olmstead decision, handed down in the summer of 2010, the Florida Supreme Court addressed the ownership of limited liability companies. It was confirmed by the Florida Supreme Court that an individual’s membership interest in a limited liability company constitutes a property right that is subject to a judgment, even though the judgment had nothing to do with the LLC.
Because of this, the old LLC Statutes were revised by the Florida Legislature to clarify that a judgment could not be used to seize a member’s interest in a multi-member LLC and that only the member’s entitlement to a distribution from the LLC may be attached. The Revised LLC Act extended on this, stating that, in the case of a multi-member LLC, failing to address the ownership interest in a well-crafted operating agreement can result in unforeseen repercussions for the organization. The owners of any Florida limited liability company (LLC) should always take the time and incur the minor cost of consulting with a knowledgeable and experienced business lawyer in order to assess whether or not an operating agreement is appropriate for their particular firm.
They will be able to create an agreement that is consistent with their intentions, evaluate whether any existing agreements are consistent with their intentions, determine whether their existing agreement complies with the requirements of the Revised Act, or identify provisions that can be included to ensure the smooth operation of the enterprise. A well drafted and well-supported operating agreement for a limited liability company (LLC) can go a long way toward reducing the costs of any future dispute that may arise, for example, if an owner wishes to leave the LLC, dies, or gets divorced.