Why an Operating Agreement is Important
If you are in the process of starting a business, you are probably extremely excited about getting your products or services to the market and starting a new chapter in your life. It is important, however, to make sure that you are taking steps to protect your rights and ensuring that your new venture is in compliance with Florida law.
What is an Operating Agreement?
An operating agreement is an agreement specific to limited liability companies (LLCs) in Florida that sets out important details about the way the company will be run. The state of Florida does not require LLCs to submit their operating agreement to the Secretary of State or even have one in writing. Without an operating agreement, however, things can go south - and quickly. Here are some of the reasons that an operating agreement is important for every LLC.
Setting Expectations and Roles
When there are multiple owners, it can be difficult for everyone to know their specific roles. You want your operations to be as organized as possible, with well-defined responsibilities and rights of each owner. An operating agreement can address:
- Each owner’s management duties and authority
- Each owner’s contributions to the company, whether monetary or otherwise
- How to divide profits and losses
When people do not have clear roles delineated in a written and legally binding agreement, chaos and conflict can ensue, which can quickly put the entire company in jeopardy.
There will always come a time when owners of an LLC will disagree on certain matters, which can be large or small. If owners cannot compromise and reach a resolution, they can visit the operating agreement for guidance. Often, the terms of the agreement will provide answers for how to proceed and continue working together for the good of the company. In this way, lengthy or costly legal conflicts can often be avoided with the right operating agreement.
If owners refer to the operating agreement and still cannot find a middle ground in a dispute, the agreement should have provisions and guidelines for how the owners should proceed to a resolution. Many owners may want to rush into court, though litigation can be expensive and might drain the company resources. An operating agreement can require owners to participate in mediation or use arbitration as methods of alternative dispute resolution (ADR). ADR can help resolve the problem while saving as many resources as possible and, hopefully, salvage the working relationship between owners. In the event one owner needs to be ousted or wants to resign, the agreement will dictate the procedures for doing so.
Call Us Today to Schedule a Consultation with a Sarasota Business Lawyer
Starting a business is a major endeavor, and it’s critical that you start off on the right foot by having all of your necessary documents properly drafted and executed. To schedule a free case evaluation with a Sarasota business attorney, call the Inverso Law Group today at 941-926-6039 or contact us online.