Here are three examples of issues you’ll face if you choose to use a generic form for your operating agreement when you form a Limited Liability Company.
1. The new statute versus the old statute
2. Member managed versus Manager managed
3. Default provisions
As I mentioned in my recent blog, a new Florida statute was recently enacted. This statute controls all LLCs that were formed after January 1, 2014. LLCs formed before January 1, 2014 obtain the benefit of one year breathing room to get geared up to comply with the new statute. What this means is if you were operating under and old LLC, regardless of when it was formed, they are now controlled by the new statute as of January 1, 2015.
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What does this mean to you, your business and your business partners? This means that you now are stuck with boiler plate provisions in the statute governed by what the legislature thought was best for you instead of what is really best for your own specific circumstances.
If you have an operating agreement that is drafted to address all of you and your partners legal needs, you will, generally speaking, overcome the statutory provisions you do not want and you have an agreement that truly reflects the intent of you and your partners.
The best time to come to an agreement with you and your partners to govern what will happen when the fruits of your labor give you great financial success is when you first open up a business. STOP and TAKE ACTION then; do not wait until success becomes a reality because it is much more difficult to reach a meeting of the minds when all of the hard work is done.
Each partner may have a much different viewpoint of their efforts after the results have been obtained.
The new statute now provides that you are either Member managed or Manager managed. Previously, many people opened up their LLC designated the manager position as “Managing Member”. This again ties back to your operating agreement. What does it say? How does it determine who has authority to do what?
If you designated your Manager in public records as a “Managing Member”, it will now be deemed Member managed as a matter of law. Does your operating agreement give the member the authority as a manager or have you left your company open with no structure to determine how it should be managed? Or if you intended your business to be Manager managed, you must designate this in the public records and it needs to tie back to the terms of an operating agreement and not a form.
The third pitfall is the default provisions in the statute and the importance of customizing your operating agreement to control you and your partners’ intent. Key factors to consider are as follows:
1. Protection of the membership interest
2. Restrictions on transfer of membership interest
3. Withdrawal by a member
Do you have a multimember thriving company? Do you have in your mind which you believe is in the best interest of your family if you should become disabled or upon your death? Do you believe that a buyout provision is in your best interest or did you envision that your family members would continue to receive the benefit of your hard work and therefore the income you earned when you were operating the business?
If you don’t address issues like this in your operating agreement, you risk not meeting the goals of providing for you and your family in your future. And, you open yourself up to unsuspecting results when governed by a statute or a court of law instead of sitting down with your partners and making a decision that works best for you.
Sit down with your lawyer to discuss your goals and get them reduced to writing. You and your partners will feel great once an operating agreement is in place.
The contents of this blog and website are for informational purposes only and do not constitute legal advice. Use of and access to this blog and website do not create an attorney-client relationship between the user and Iurillo Law Group, P.A.