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7 Key Provisions in LLC Operating Agreements

On Behalf of | Aug 16, 2019 | Business Law |

While choosing the right entity structure requires a thorough assessment of various legal, financial and practical considerations, the limited liability company (LLC) is a popular choice for companies of all sizes and in a broad range of industries. Forming an LLC requires two primary documents: (i) Articles of Organization, and (ii) an Operating Agreement.

Articles of Organization vs. Operating Agreements

The Articles of Organization are filed with the appropriate state agency in order to legally form the LLC. This is typically a one or two-page document that contains basic information such as the company’s name, principal place of business, mailing address, registered agent and business purpose. Once filed with the necessary fee and approved by the relevant state agency (the Division of Corporations in Florida), the Articles of Organization become the company’s official founding document.

Unlike Articles of Organization, the Operating Agreement does not need to be filed. The Operating Agreement is signed by all owners of the LLC (who are referred to as “members”), and it establishes the rights and obligations of the members and company managers (who may or may not be the same people). Operating Agreements are lengthy documents that should be custom-tailored to the unique aspects of the business, and an LLC’s members should ensure that the company’s Operating Agreement contains all of the necessary provisions to protect themselves, protect the company, and minimize the risk of litigation going forward.

LLC Operating Agreements: Key Provisions to Protect Members and the Company

Whether you are forming a single-member LLC or your company will have multiple owners, there are a number of key provisions that you will likely want to include in your LLC’s Operating Agreement. Here are some examples:

  • Capital Contributions – How much capital will each member contribute to the LLC initially? When can the LLC require additional capital contributions from members? What are the rules and requirements for accepting outside investment?
  • Classes of Membership Interests – How many classes of membership interests will your company have? How will each class’s rights differ?
  • Distributions and Financial Allocations – When will members be entitled to distributions from the company? How will the amount be determined? How will profits and losses be allocated amongst the members (or should you elect for C-corporation tax treatment)?
  • Company Management – Will your LLC be “member-managed” or “manager-managed”? When will members have the right to overrule managers’ decisions? How and when can managers be removed?
  • Member Liability – Will members be entitled to indemnification if they get sued for official acts? When can the LLC take legal action against its members?
  • Transfer of Membership Interests – When can members sell their interest in the company? What are the requirements for new members (transferees) to be admitted?
  • Termination and Withdrawal – When can members’ ownership interests be terminated? What happens of a member withdraws from the LLC?

Speak with a Fort Lauderdale Business Lawyer at Saavedra | Goodwin

If you are preparing to start a business in Fort Lauderdale, our business lawyers can help you choose the most-appropriate entity structure and prepare all of the legal documentation you need. To get started with a confidential consultation, call (954) 928-9568 or request an appointment online today.

Founding Partners Damaso W. Saavedra and Allyson D. Goodwin