Many LLCs draft an operating agreement as part of the formation process. The purpose of the operating agreement is to outline your company’s internal operations structure, as well as ownership and member responsibilities. Signing one brings many benefits.
Drafting an operating agreement is not a required step to form your LLC, but many businesses find it is a useful tool and can prove an important legal document to have on record - even for Single Member LLC. Members can set out and agree to certain terms, conditions, or contingencies that offer them protection in a variety of scenarios - including, for example, making distributions for taxes.
Every state has its own set of default rules that govern your
business if you don’t have an operating agreement in place that
determines otherwise. For example, it is common for a state to
have rules that stipulate how LLC profits and losses be equally
divided between membership.
This may work fine for some LLCs and maybe how they would operate anyway. But if, for example, your LLC had several owners that invested different amounts into the company, you may want to tier your profits and losses according to those investment amounts. An operating agreement would allow you to dictate this rule and many other useful governing principles.
Operating Agreement for Single-Member LLCs
If your company is a single-member LLC, it has only one owner or
member. While an operating agreement in this scenario may seem
unnecessary, there are still important stipulations that can be
outlined with this document.
For example, if you would like a relative to inherit your business you can set up a transfer of membership provision. Having this plan set up and in writing can ensure a smooth transfer to the relative. Additionally, it is common practice for a bank to ask to see your operating agreement for proof of ownership.
Operating Agreement for Multi-Member LLCs
If your company is a multi-member LLC, it has more than one
owner or member. In this case, there are several important
facets that can expressed and planned for in your operating
agreement. For example, basic member responsibilities should
be outlined, as well as ownership shares. Having this down
in writing will help settle any disputes and ensure each
member is on the same page.
Taking this step in the early stages of your business could end up saving you plenty on legal fees down the road were there to ever be a disagreement about ownership percentages.
Your operating agreement can also set important disclosure limitations for protecting member information. It can also place restrictions on the transfer of shares, which eliminates the possibility of a third-party obtaining voting rights in your company without permission.
Drafting Your Operating Agreement
While it is possible to draft your LLC’s operating agreement
on your own, it is a smart idea to have the assistance of an
attorney. Your attorney can review the agreement to make
sure it covers every crucial component and complies with all
It is possible that if certain elements are not accurate or explicit enough, your LLC will adopt the state’s default provisions, which may conflict with your intentions. An attorney can also help you meet all of your state’s required operating agreement provisions.
For all these reasons, we recommend drafting an operating agreement for your business in its very early stages. It is an important step to take for asset protection and member agreement as you move forward and begin to grow. We can assist you with this process and make sure your operating agreement serves as a useful tool and a solid foundation for your business.
Florida LLC Benefits
Forming a Florida LLC provides several advantages not available to sole-proprietorships in Florida. To enjoy these benefits, though, it's important to obey corporate formalities such as drafting and having all members sign an operating agreement, organizational minutes and other corporate documents.