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The Importance of Operating Agreements When Starting A Business

It’s exciting to start up a new business in Florida, which is why many people in your position are so focused on perfecting their offerings and getting ready to launch. Amidst all the anticipation, there’s one aspect of business formation that you may overlook: Executing an operating agreement, which is essentially the blueprint for your company. Florida’s statute on operating agreements contains many provisions regarding the scope, function, and limitations.

However, the law doesn’t provide insight into the importance of an operating agreement, especially as it relates to the benefits it offers and risks it helps you avoid. A Clearwater business formation lawyer can describe these factors in more detail, but a few advantages include:

You can establish a custom-tailored business structure: An operating agreement can be used to spell out various terms regarding the management of the company, distribution of profits and losses, and other issues related to how the company functions. You’re able to list the specifics regarding the roles and responsibilities of each stakeholder, whereas Florida law states these matters in very generic terms.

You avoid application of Florida default rules on business organizations: The statute includes many basic, general provisions that you may want to alter, and an operating agreement allows you to do that. For instance, the default rule is that someone who invests 20 percent of the capital will receive 20 percent of the profit and loss distribution. However, there may be situations where one member is contributing “sweat equity” through services to the company. In such a case, you can provide a different distribution percentage.

It’s possible to avoid costly, disruptive member disputes: You can craft an operating agreement that specifies how disagreements should be resolved, thus steering clear of contract disputes that can lead to expensive litigation. You could include a requirement for voting on certain issues or make it mandatory to go through mediation.

You’ll reinforce your limited liability: A company that’s executed an operating agreement gets more respect in terms of the line between personal interests and business assets. This is especially true in one-person organizations, where the lack of formality might lead to the presumption that your company is a sole proprietorship. Without an operating agreement, creditors may come after your personal property.

You can maintain control over what happens when stakeholders withdraw: If you seek to function as a closely-held entity, you can prohibit stakeholders from transferring shares to other individuals without member approval. Business owners want to have control over who they’re working with when another person leaves. It’s also possible to designate a formula over how you’ll value the shares of a departing stakeholder.

Contact a Clearwater Business Formation Attorney About Drafting Operating Agreements

If you’re a Florida business owner or starting up a new company, our team at Clearwater Business Law can assist with operating agreements and a wide range of other formation issues. We represent clients throughout Pinellas County, and we’re happy to provide more information on important startup tasks. Please call (727) 785-5100 today to schedule a consultation with one of our experienced Florida business lawyers.