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An Operating Agreement for Your LLC is Important

By Howard C. Stross
January 05, 2015

The lack of an Operating Agreement signed by all Members of an LLC is a big mistake for many reasons. Florida law does not require an LLC to have an Operating Agreement. Here are four of the reasons why business owners and real estate investors need an Operating Agreement for an LLC:

To prove the percentage of the LLC each Member owns.

The owners of the LLC are called Members. When someone wants to set up an LLC, the Florida Division of Corporations requires Articles of Organization to be filed. However, this only lists who the Manager is and who the Registered Agent is. It does not state the names of the Members or their ownership percentages. Maybe there are four Members but they don’t own 25% each. The Operating Agreement is the place to specify who the Members are and how much of the LLC each Member owns.

To restrict the transfer of membership interests without the consent of the Members.

Without an Operating Agreement that contains restrictions on transferring a membership interest a Member can transfer all or a portion of the member’s interest in the company to anybody for any consideration or for no consideration. Most people do not want to wake up and find out that their partner transferred all of his or her interest in the company to an unknown person who now owns one-half of the LLC. The Operating Agreement should contain restrictions on transfer and a provision that gives the company a first right of refusal to acquire the interest a Member desires to transfer on the same terms and conditions applicable to the proposed transfer. Other Members should have a second right of refusal if the LLC does not exercise its first right of refusal.

To limit the powers of the Manager.

The Operating Agreement should state what actions the Manager can take without getting member approval and what actions require the vote and approval of all the members. This prevents the Manager from being able to sign a contract that obligates the LLC to spend money or buy, sell or lease real estate without the Members’ approval.

To prevent Members from disclosing confidential information about the LLC.

Unless a Member signs an Operating Agreement with confidentiality provisions, the Member may disclose the company’s confidential information. The Operating Agreement will prevent the Members from disclosing financial statements, tax returns and business plans.

This article is for general information only and is not intended to provide legal advice. These are not the only reasons you should have an Operating Agreement for your LLC. If you don’t have an Operating Agreement, you should consult with a business law attorney. Call us at 813-852-6500 to schedule a free 30-minute consultation.

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