Is Your Florida LLC Operating Agreement Outdated?

This article was written by Elan R. Kaney, Esq., a Florida attorney with more than 25 years of experience concentrating in probate, estate planning, business law and tax law.

Is Your Florida LLC Operating Agreement Outdated?

Florida's LLC laws have evolved significantly over the years. If your Operating Agreement was drafted several years ago—or if you downloaded a form from the internet—it may no longer reflect current Florida law or adequately protect your business. In other words, your Florida LLC Operating Agreement may now be outdated.

Many LLC owners assume that once an Operating Agreement is signed, it never needs to be reviewed. In reality, changes in Florida law, changes in your business, and changes in ownership may all require updates to your governing documents.

What Should an Operating Agreement Address?

Every business is different, but a well-drafted Florida Operating Agreement should address issues such as:

• ownership percentages;

• initial capital contributions;

• additional capital contributions;

• management authority;

• voting rights;

• allocation of profits and losses;

• distributions to members;

• banking authority;

• admission of new members;

• transfers of ownership interests;

• death or disability of a member;

• retirement or withdrawal of a member;

• expulsion of a member;

• dispute resolution;

• dissolution and winding up; and

• procedures for amending the agreement.

These issues are easy to ignore when everyone gets along.

Unfortunately, they often become expensive litigation issues when business relationships change.

Florida's LLC Laws Continue to Evolve

Florida's Limited Liability Company Act has undergone significant revisions over the years.

Those changes affect many important areas of LLC governance, including:

• management authority;

• fiduciary duties;

• admission and withdrawal of members;

• voting requirements;

• judicial dissolution;

• creditor rights;

• transfers of ownership interests;

• appraisal rights;

• mergers and conversions; and

• numerous default rules that apply when an Operating Agreement does not address an issue.

Some of the more important changes include:

Florida law now contains numerous default rules that govern LLCs when an Operating Agreement is silent on a particular issue. Unfortunately, those default rules may not reflect what you and your business partners intended. A properly drafted Operating Agreement allows you to customize many of these rules to better fit your business.

Management Authority

• Who has the authority to bind your company?

• Can every member sign contracts?

• Can one member borrow money or sell company assets without the others?

Florida law addresses these issues, but many business owners prefer to establish their own management structure rather than rely on statutory default rules.

Voting Rights

Not every business decision should require the same level of approval.

Your Operating Agreement should clearly establish which decisions require:

• a simple majority;

• a supermajority; or

• unanimous consent.

Proper planning today can prevent expensive disputes tomorrow.

Admission and Withdrawal of Members

Your Operating Agreement should address questions such as:

• How are new members admitted?

• Can an owner voluntarily withdraw?

• What happens if an owner dies or becomes disabled?

• Can an owner transfer an interest to someone else?

Without clear provisions, Florida's default rules may control these situations.

Buy-Sell Provisions

One of the most common sources of business litigation occurs when an owner wants, or needs, to leave the company.

A well-drafted Operating Agreement should explain:

• who may purchase the departing owner's interest;

• how the business will be valued;

• when payment is due; and

• what happens if the remaining owners cannot agree.

Fiduciary Duties

Members and managers owe legal duties to one another and to the LLC.

Your Operating Agreement should clearly define management responsibilities while remaining consistent with Florida law.

Creditor Protection

Florida law provides important protections for LLC owners, but those protections are strongest when the business is properly organized and operated.

Keeping your governing documents current can help preserve those protections and reduce unnecessary legal risk.

Dispute Resolution

No one starts a business expecting to end up in court.

Your Operating Agreement can establish procedures for resolving disagreements before they become lawsuits, including mediation, arbitration, voting procedures, and buyout mechanisms.

Business Succession Planning

Every Operating Agreement should answer an important question:

What happens if an owner dies, becomes disabled, retires,

files bankruptcy, or simply wants to leave the business?

Planning for these events before they occur can prevent confusion, protect the remaining owners, and help ensure the continued success of the business.

Why Periodic Reviews Matter

Many Florida LLCs are still operating under agreements drafted years ago—or worse, downloaded from the internet.

As your business grows, your Operating Agreement should grow with it.

We recommend reviewing your Operating Agreement whenever:

• a new member joins the company;

• an owner leaves;

• ownership percentages change;

• significant assets are acquired;

• the business expands into new markets;

• tax laws or Florida business laws change; or

• every three to five years as part of a general legal review.

A periodic review can help ensure your LLC continues to operate according to your intentions rather than relying on Florida's default statutory rules.

Common Mistakes Business Owners Make

• Using a Generic Form

A generic form cannot anticipate your specific business needs or the unique relationships among the owners.

• Never Updating the Agreement

Businesses change.

Owners get married, divorced, retire, pass away, bring in investors, expand operations, or change management.

Your Operating Agreement should evolve with your business.

• Ignoring Buy-Sell Provisions

One of the most common sources of litigation is what happens when an owner wants—or needs—to leave the business.

A properly drafted buy-sell provision can prevent years of expensive litigation.

• Failing to Address Death or Disability

If an owner dies unexpectedly, who inherits the ownership interest?

Question: Will the surviving owners be required to work with the deceased owner's family?

Question: Can the business purchase the deceased owner's interest?

These questions should be answered before they become real-life problems.

• Not Defining Management Authority

Question: Who has authority to sign contracts?

Question: Borrow money?

Question: Hire employees?

Question: Sell company assets?

Without clear authority provisions, misunderstandings and disputes can quickly arise.

An Operating Agreement Can Help Prevent Litigation

Many business lawsuits could have been avoided with a carefully drafted Operating Agreement.

Rather than relying on Florida's default statutory rules—or asking a judge to decide what should happen—the owners can establish their own rules in advance.

Good legal drafting is often far less expensive than business litigation.

Protect Your Business Before Problems Arise

Your LLC may be one of your most valuable assets.

A well-drafted Operating Agreement protects not only the business itself but also the relationships among its owners.

Whether you are forming a new Florida LLC, admitting a new member, purchasing an existing business, or simply wondering whether your current Operating Agreement is still adequate, having the document reviewed by an experienced Florida business attorney is one of the smartest investments you can make.

Like a Will or Trust, an Operating Agreement is a document you hope you never have to rely upon in court—but if that day comes, you'll be grateful it was drafted properly.