The New Year (2022) is rapidly approaching, and with the New Year comes new opportunities. Most people are familiar with the concept of a “new year resolution,” which basically means that a person will commit to a new habit – or commit to abandoning a current habit – after the New Year. If your LLC doesn’t currently have an operating agreement, you should use the opportunity presented by the New Year to create one. The State of Florida is one of the many states which don’t require an operating agreement for LLCs. However, just because Florida doesn’t mandate an operating agreement doesn’t mean you should continue to put off this document.
The Danger of Procrastination
When it comes to operating agreements, procrastination is quite common. As mentioned, operating agreements are technically not a firm requirement in Florida, and so many businesses are tempted to either put off or avoid these agreements. The truth, however, is that procrastinating on these agreements can be very costly in the long run. Operating agreements spell out the details regarding the financial and functional aspects of the company. This means that they outline how the company responds to certain disputes or uncertainties, as well as disbursement of bonuses and other related matters.
If a company lacks an operating agreement, then the company will be governed by the default rules provided by the State of Florida. In many cases, the default rules may not be the preferred rule of a given company, and so avoiding an operating agreement is usually an unwise decision.
The Necessity of a Solid Operating Agreement
As mentioned, an operating agreement lays out how the key decisions for the LLC will be made. For instance, how the LLC will be managed, how the members will vote to make changes, the ownership structure, capital contributions, capital distributions, and how the LLC may ultimately be dissolved. Again, if an LLC doesn’t lay out these things in an operating agreement, then the state will eventually step in to fill the gap in the event that a dispute arises. Developing an operating agreement therefore removes the state from becoming involved in certain ways and puts more power in the hands of LLC members.
Use the New Year to Create an Agreement
The choice is clear: if you invest a bit of time into creating an operating agreement, this can ultimately save you a great deal of time and money down the line. At some point, most businesses will run into a dispute for one reason or another. Perhaps they will need to add a new member, or possibly dispel an existing member. Or perhaps they will even quarrel about the exact ownership structure or capital contribution structure of the business. An operating agreement can potentially resolve these disputes before they arise; or, at the very least, before they have time to grow and end up costing the business tons of money in litigation related expenses.
Of course, if you do decide to start the New Year off with an operating agreement, this won’t be the easiest task. These agreements can often take a good amount of energy, time and effort to develop properly. Investing in a capable business attorney is highly recommended.