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The importance of your LLC’s operating agreement

On Behalf of | Mar 8, 2023 | Business & Corporate Law

If you want to start an LLC in Florida, don’t forget your operating agreement. The appeal of this option is the personal protection it offers. At the same time, you won’t have to deal with all the formalities that come with other business structures.

Why does an LLC need an operating agreement?

An operating agreement is crucial for the protection of the limited liability status of your business. It’s a way to protect your members and keep them from being personally liable. If you don’t have an operating agreement, the LLC might look too much like a partnership or sole proprietorship, which may jeopardize your liability.

Your operating agreement is there to clarify any agreements you’ve made verbally. It’s easy to think that all members understand what they’ve orally agreed to. Still, it’s common for the terms to be miscommunicated by the business owner or misunderstood by the member.

Every business arrangement such as the operating conditions should be put into writing. This allows you to refer back to the agreement if a conflict should occur.

Another function of your operating agreement is to protect your LLC from being governed by state laws. This happens to any limited liability company that doesn’t have their operating agreement made official. It’s not a good idea to let your state decide what’s best for your company since the business law defaults that your governing body state uses are vague and highly general.

Do you need to file your operating agreement?

A typical operating agreement can be anywhere from five to 20 pages long. It’s important to remember that you should keep this document confidential. Also, remember that your state won’t accept this document if you send it to them since you don’t need to file your operating agreement. It’s best to store it with the rest of your LLC’s central records.

An LLC is among the least formal business structuring options. But even with all the formalities the business structure foregoes, you shouldn’t forget about the operating agreement. This keeps control of the business out of the state’s hands, clarifies all agreements and protects your members’ liability.