Your Corporation Needs a Bulletproof Operating Agreement

Starting and running a Florida business presents a world of opportunity. You have something to not only build wealth for yourself and your family but also impact the communities around you. There is great pride in this, but there is also much work to be done.

We previously touched on the importance of incorporating your business. Another aspect of the early stages of your business that cannot be overlooked is an operating agreement.

What is an Operating Agreement?

These agreements need to cover important rules, regulations, and best practices for the business and any partners. Your agreement will be used as a consistent resource that governs how important decisions are made, who will be responsible for what aspects of the company, and what powers each partner has in the day-to-day operations.

Each partner should thoroughly read, understand, and sign the document. These are not required by law, but a failure to put one together can put your business at serious risk.

What Should Be Included?

Each corporation’s operating agreement will look different from the next. There is no rule that says it should be one page, two pages, ten pages, one hundred pages, or beyond. Ultimately, the length will come down to how many important details need to be addressed for your Florida LLC. Those details can include:

  • Ownership stakes
  • Buyout details should a partner want/need to leave
  • How ownership stakes will be dispersed in the event of a death or incapacitation of a partner
  • How and when profits can/will be distributed
  • Powers held by each partner
  • Who will be held responsible for which aspects of the business
  • How decisions will be voted on and who holds voting power
  • The schedule of necessary business and partner meetings
  • What happens if the business is to be sold or shuttered

Your agreement should address all or most of these details, but there are numerous others that can be included depending on the preference of your partnership.

What Happens if We Don’t Have One?

The lack of an operating agreement opens you up to partnership disputes and litigation. Without one, many of the above details will eventually be assumed based on the actions of each partner and their relationship with the company.

A partner may claim that they have more of a right to collect profits, make decisions, enter the company into contracts, or take other actions if there has never been a discussion or agreement about such details.

What Happens if We Do But Still Face Litigation?

The presence of an operating agreement does not eliminate the possibility of litigation. However, your operating agreement will provide a roadmap to how that litigation will play out.

If the operating agreement has been signed and agreed to but a partner sues to create more power or responsibility, the agreement should stand in the way. There will be wiggle room in these cases if the partners have consistently failed to uphold the details of the agreement, however.

Work with an Experienced Florida AttorneyAt the Law Office of Ray Garcia, we can help you and your partners establish an operating agreement that sets you up for success and mitigates the risk of future litigation. These should not be taken lightly, so our team can work with you to ensure the legality of each and every detail. Contact us to get started on your agreement or to reinforce one you already have in place.

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Law Office of Ray Garcia, P.A.

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