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Does my LLC Really Need An Operating Agreement?

Updated: Sep 15, 2020

Without exception, I find clients initially question the importance of having a properly drafted operating/partnership/shareholder agreement when setting up their LLC. Sure, you can register with the state and pick your name, but the most critical part of your business is the underlying document that governs how you with operate. The operating agreement describes the operations of the LLC and sets forth the agreements between the members (owners) of the business. All LLC’s with two or more members should have an operating agreement.

Do single-member LLCs need an operating agreement, even though they don’t need to worry about disputes between members? ABSOLUTELY!

Individuals generally form LLCs or corporations to limit personal liability. Limited liability is only earned when the LLC is treated as a separate entity from the business owner. A well-drafted operating agreement clarifies how LLC funds are contributed and distributed to the owner and defines how records are kept. Keeping records of operations establishes the separateness of the business from the owner for liability and tax purposes. Without an operating agreement, it will be very difficult to show that your business is separate from you.

An operating agreement also clarifies what happens if the owner dies or is unable to run the business. It functions as your succession plan. Your operating agreement should include a clause addressing who will manage the LLC if you are unable to do so. Including these clauses can prevent your family from protracted legal battles in the event of incapacity or death.

Whether you are in business for yourself or with another person the operating agreement lays down ground rules for managing the company and for resolving disputes so you don’t end up battling it out in court.

Without an operating agreement, your business dispute will likely be subject to Florida default rules.  Judicial dissolution is a costly alternative to proactively establishing your plan with a well-drafted operating agreement,

Putting an operating agreement in place when you start your business is an investment worth making. If you or someone you know is in need of a business attorney, call the Kendrick Law Group at 407-641-5847 to schedule your consultation.

#BusinessLaw #LLC #SaraGeltz

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