Why Every Florida LLC Needs an Operating Agreement

Florida does not require LLCs to have operating agreements. You can form an LLC, receive your certificate from the Division of Corporations, open bank accounts, and operate your business without ever creating one.

This is a mistake.

An operating agreement is your LLC's internal governing document. It defines who owns what, who has authority to make decisions, how profits are distributed, what happens when members disagree, and how members can exit the business. Without it, Florida's default statutory provisions govern these critical issues—and those default rules likely don't match what you and your co-owners actually intend.

This guide explains why every Florida LLC should have an operating agreement, what provisions matter most, and how to avoid the mistakes that create problems when disputes arise.

Why Operating Agreements Matter

Operating agreements serve three critical functions: they establish clear expectations among members, they override Florida's default statutory rules with provisions that fit your business, and they strengthen your limited liability protection.

Clear Expectations Prevent Disputes

Most LLC disputes arise from misaligned expectations about decision-making authority, profit distribution, or exit procedures. Operating agreements force these conversations to happen at formation when relationships are good, rather than during disputes when emotions run high.

The agreement doesn't prevent disagreements—it provides a framework for resolving them without litigation.

Default Statutory Rules Rarely Fit Your Business

Florida's LLC statute (Chapter 605) provides default rules for LLCs without operating agreements. These rules are one-size-fits-all and don't account for your specific ownership structure, business model, or member relationships.

Without an operating agreement:

• Profits and losses must be allocated based on capital contributions, even if members agreed to different arrangements
• Members vote based on membership interest percentages, not per capita as many small businesses prefer
• Any member can act on behalf of the LLC if it's member-managed, potentially binding the company without other members' knowledge
• Members can transfer their economic rights (profit distributions) without restriction, potentially making your ex-spouse or a member's creditor entitled to LLC distributions

The operating agreement lets you structure these provisions however works for your business.

Strengthening Liability Protection

Courts sometimes disregard LLC limited liability protection if the LLC isn't treated as a separate entity from its owners. Having an operating agreement demonstrates formality and separation—you're not just running a business through an LLC shell, you've established actual governance and operational procedures.

This matters most for single-member LLCs, which face greater scrutiny in litigation than multi-member entities.

Florida Law Without an Operating Agreement

Understanding Florida's default rules helps explain why operating agreements matter. Chapter 605 of Florida Statutes governs LLCs and provides default provisions that apply unless your operating agreement specifies otherwise.

Default Management Structure

Under Florida law, LLCs are member-managed by default unless the articles of organization specify manager-management. In member-managed LLCs, every member is an agent who can bind the LLC in ordinary business transactions.

This creates risk in multi-member LLCs where you don't want each member independently committing the company to contracts or obligations.

Default Profit and Loss Allocation

Florida statute allocates profits and losses based on the value of capital contributions. If two members contribute $50,000 and $30,000 respectively, profits split 62.5% / 37.5% regardless of their work involvement or other arrangements.

Many LLCs want different arrangements—equal splits despite unequal capital contributions, or distributions based on active involvement rather than initial investment. The operating agreement permits this flexibility.

Default Voting Rights

Members vote based on their percentage ownership interest. A 60% member can unilaterally approve or block any decision requiring majority vote.

Operating agreements can modify this—requiring unanimous consent for major decisions, implementing per capita voting (one member, one vote), or establishing different voting thresholds for different types of decisions.

Default Transfer Rights

Florida law distinguishes between transferring membership interests (full ownership rights) and transferring economic rights (just the right to distributions).

Members cannot transfer full membership interests without consent of all other members. But members can freely transfer their economic rights, meaning they could assign their right to distributions to a creditor, ex-spouse, or other third party without other members' approval.

Operating agreements typically restrict all transfers and include right of first refusal provisions.

Default Dissolution Provisions

Under default rules, an LLC dissolves upon consent of all members or occurrence of events specified in the articles of organization. The statute provides limited guidance on dissolution procedures or asset distribution.

Operating agreements should specify dissolution triggers, procedures for winding up the business, and how assets are distributed among members.

Essential Operating Agreement Provisions

Comprehensive operating agreements address ownership, management, finances, transfers, and exit procedures. These provisions work together to create a complete governance framework.

Ownership and Capital Contributions

Document each member's initial capital contribution and resulting ownership percentage. Specify whether contributions are cash, property, services, or promissory notes.

Include procedures for additional capital contributions if the business needs more funding. Address what happens if a member cannot or will not make a required additional contribution—do they get diluted? Can they be forced out?

Example Provision Structure:

Management Structure and Authority

Specify whether the LLC is member-managed or manager-managed. If manager-managed, identify the managers and how they're appointed or removed.

Define what authority each management level has. What can managers do unilaterally? What requires member approval?

Common authority allocations:

• Manager/Member unilateral authority: Ordinary business transactions under $10,000, entering contracts in the normal course of business, hiring/firing employees
• Majority member approval: Contracts over $10,000, taking on debt over $25,000, hiring key executives
• Unanimous member approval: Selling major assets, admitting new members, amending operating agreement, merging with another entity, dissolving the LLC

The thresholds and categories depend on your business size and risk tolerance.

Voting Rights and Procedures

Establish how members vote. Options include:

• Percentage voting: Members vote based on ownership percentage (60% member has 60% of votes)
• Per capita voting: One member, one vote regardless of ownership percentage
• Hybrid approach: Per capita for some decisions, percentage for others

Define what approval threshold is required for different decisions. Most operating agreements distinguish between routine matters (majority vote), significant matters (supermajority or unanimous), and day-to-day operations (no vote required).

Profit and Loss Allocation

Specify how profits and losses are allocated among members. This doesn't need to match ownership percentages.

Common allocation structures:

• Pro rata to ownership: 60% owner gets 60% of profits
• Equal split: All members share equally regardless of ownership percentage
• Performance-based: Allocations vary based on member contributions or performance metrics
• Waterfall: Preferred returns to certain members first, then remaining profit split differently

Allocation of profits for tax purposes doesn't need to match actual distributions—you might allocate 60/40 for tax but distribute 50/50, or vice versa.

Distribution Provisions

Establish when and how the LLC makes distributions to members. Key provisions include:

Distribution timing: Quarterly, annually, or at managers' discretion?

Distribution amounts: All available cash after reserves, specific percentage of profits, or managers' determination?

Tax distributions: Many operating agreements require minimum distributions sufficient to cover each member's tax liability on allocated income, even if the LLC retains the cash for operations. This prevents members from owing tax on income they never received.

Reserves: The LLC should retain adequate working capital before distributing profits. Specify how reserve amounts are determined.

Transfer Restrictions

Control who can become a member and prevent unwanted third parties from obtaining ownership interests.

Standard transfer provisions include:

• Prohibition on transfers: No member may transfer their interest without consent of all other members
• Right of first refusal: Before transferring to outsiders, member must offer the interest to other members at the same price and terms
• Company right of first refusal: LLC has the first right to purchase before offering to members
• Tag-along/Drag-along rights: In sophisticated agreements, minority members can join majority sales (tag-along) or be required to join them (drag-along)

Include exceptions for transfers to family members, trusts, or estate planning entities, subject to the transferee agreeing to be bound by the operating agreement.

Buy-Sell Provisions

Buy-sell provisions establish what happens when a member wants to exit, dies, becomes disabled, gets divorced, or files bankruptcy. These provisions prevent you from being forced into business with a deceased member's heirs or a divorcing member's ex-spouse.

Key elements:

Triggering events: Death, disability, retirement, termination of employment, voluntary withdrawal, divorce, bankruptcy

Valuation methodology: How is the member's interest valued? Options include:

• Formula based on book value or earnings multiple
• Annual appraisal by independent valuator
• Negotiated value updated periodically
• Members' agreement on value in the purchase process

Payment terms: Lump sum, installment payments over time, or earnout based on future performance?

Purchaser: Does the LLC purchase the interest, or do remaining members? If members, how is the purchase allocated among them?

Funding mechanism: Life insurance for death, disability insurance for disability, or is the LLC/members expected to self-fund?

Single-Member LLC Considerations

Single-member LLCs should have operating agreements even though there are no co-owners to coordinate with. The agreement serves different purposes for single-member entities but remains important.

Strengthening Liability Protection

Courts scrutinize single-member LLCs more closely than multi-member entities when plaintiffs try to pierce the corporate veil. Having an operating agreement demonstrates formality and shows you're treating the LLC as a separate entity rather than a mere extension of yourself.

The agreement should document that you're operating the LLC according to established procedures rather than simply running a business through an LLC shell.

Succession Planning

Single-member operating agreements should address what happens upon your death or incapacity. Without these provisions, your LLC might be frozen—unable to operate or transfer—while your estate goes through probate.

Include provisions specifying:

• Who has authority to manage the LLC if you become incapacitated
• Whether your LLC interest passes to specific individuals or to your estate
• How your interest is valued for estate purposes
• Whether the LLC continues after your death or dissolves

Converting to Multi-Member

If you later add members, having an existing operating agreement provides a foundation. You amend it to add member provisions rather than starting from scratch.

Banking and Financing Requirements

Many banks and lenders require operating agreements when opening business accounts or extending credit. Having one prepared avoids delays.

Single-Member Operating Agreement Provisions

Single-member agreements are simpler but should address:

• Member's initial capital contribution and ownership percentage (100%)
• Management structure (member-managed or manager-managed if appointing yourself as manager)
• Distribution procedures and timing
• Succession provisions for death or incapacity
• Dissolution procedures

Multi-Member LLC Provisions

Multi-member operating agreements require significantly more detail than single-member agreements. The agreement mediates between different members' interests and establishes governance when conflicts arise.

Detailed Management Allocation

Multi-member agreements should precisely define who has authority to do what. Vague provisions like "managers shall manage the business" create disputes about whether specific actions required member approval.

Establish clear categories:

Thresholds should reflect your business size and risk tolerance.

Detailed Distribution Provisions

Multi-member agreements need clear distribution procedures to prevent disputes about when and how much gets distributed.

Address:

• Distribution frequency: Quarterly distributions of 75% of available cash after reserves, with 25% retained for working capital
• Tax distributions: By April 15, the LLC distributes to each member an amount equal to 35% of their allocated taxable income (estimated tax liability) regardless of available cash
• Special distributions: Can members request distributions for emergencies? Do other members have to approve? Is there a maximum frequency or amount?
• Distribution priorities: Are any members entitled to preferred returns or distribution priorities before others?

Capital Account Maintenance

Track each member's capital account, which reflects their initial contribution, additional contributions, allocated profits/losses, and distributions received.

Capital accounts matter for:

• Determining distribution amounts if not equal
• Valuing member interests upon exit
• Allocating liquidation proceeds if the LLC dissolves

The operating agreement should specify how capital accounts are maintained and what happens if a member has a negative capital account.

Admission of New Members

Establish clear procedures for admitting new members. Questions to address:

• What approval is required? (Typically unanimous consent of existing members)
• How is the new member's ownership percentage determined?
• What capital contribution is required?
• Are new members subject to vesting schedules or other restrictions?
• Do existing members have anti-dilution rights?

Dispute Resolution and Deadlock Mechanisms

Operating agreements should anticipate disputes and provide resolution mechanisms. Without these provisions, disagreements that could be resolved internally end up in court.

Mediation and Arbitration

Many operating agreements require mediation before litigation. Members attempt to resolve disputes through a neutral mediator before filing suit.

Some agreements go further and require binding arbitration instead of litigation. This keeps disputes private and often resolves them faster and cheaper than court, though parties give up rights to jury trial and appeal.

Buy-Sell Provisions for Disputes

Some operating agreements include "shotgun" or "Russian roulette" clauses allowing one member to force resolution when disputes become intractable.

Under these provisions, one member can offer to buy the other member's interest at a specified price. The receiving member must either accept the offer and sell, or buy the offering member's interest at the same price per percentage point.

This forces members to make fair offers since they might end up being the seller.

Deadlock Provisions for Equal Ownership

50/50 LLCs face unique challenges when members deadlock on major decisions. Operating agreements should anticipate this.

Common deadlock solutions:

• Designated tiebreaker: A trusted third party casts deciding vote on deadlocked issues
• Required unanimous decisions: If 50/50 members can't agree, action can't be taken (this effectively gives each member veto power)
• Buy-sell triggering: Deadlock on specified major issues triggers buy-sell provisions
• Dissolution: If deadlock persists beyond defined period, LLC dissolves

Expulsion Provisions

Some multi-member agreements allow members to vote to expel another member under certain circumstances (fraud, competition with LLC, breach of operating agreement, loss of required professional license).

Expulsion provisions should:

• Define specific grounds for expulsion
• Establish what vote is required (typically supermajority or unanimous of non-expelled members)
• Specify notice and opportunity to cure
• Determine buyout price and terms (often at discount to fair value as consequence)

Common Operating Agreement Mistakes

1. Using Generic Templates

Online templates provide basic structure but rarely address your specific ownership dynamics, business model, or member relationships. They create false security—you have a document, but it doesn't actually govern your unique situation.

Templates are particularly problematic for multi-member LLCs with complex ownership structures or businesses with specific operational needs.

2. Incomplete Buy-Sell Provisions

Buy-sell provisions often focus on death and disability but ignore other common exit scenarios: voluntary withdrawal, retirement, termination of employment (for member-employees), divorce, bankruptcy, or simply wanting out.

Each triggering event may warrant different valuation or payment terms. The agreement should address all reasonably foreseeable exit scenarios.

3. Vague Valuation Methods

Provisions stating interests will be valued at "fair market value" or "book value" create disputes when buyout situations arise.

Fair market value can be interpreted multiple ways. Book value might not reflect actual business value. Without specific valuation methodology, you'll pay appraisers to fight about it later.

Better approaches establish clear formulas or require periodic independent valuations that are binding for future transactions.

4. Unclear Management Authority

Provisions giving managers authority to "manage the business" without specifying what that includes create disputes about whether specific actions required member approval.

Define authority levels clearly with dollar thresholds and specific transaction types.

5. No Amendment Procedures

Operating agreements should specify how they can be amended. Without this, you might face arguments about whether amendments require unanimous consent or just majority approval.

Most agreements require written amendment signed by all members, or by a specified supermajority.

6. Ignoring Tax Distribution Provisions

LLCs are typically taxed as pass-through entities. Members pay tax on their allocated share of LLC income even if the LLC doesn't distribute that income.

Without tax distribution provisions, a member could owe $30,000 in taxes on LLC income they never received. This creates hardship and resentment.

Tax distribution provisions require the LLC to distribute enough to cover members' estimated tax liability, even if the LLC needs to retain other profits for operations.

7. No Dispute Resolution Procedures

Without specified procedures, every dispute defaults to litigation. Mediation and arbitration provisions keep disputes out of court and maintain confidentiality.

8. Failing to Address Minority Protection

Majority members can oppress minority members if the operating agreement doesn't include protections. Minority members should negotiate for:

• Certain decisions requiring unanimous or supermajority approval
• Tag-along rights in sales
• Information rights
• Protection against oppressive majority actions

When and How to Update Your Agreement

Operating agreements should evolve as circumstances change. Review and potentially update your agreement when:

Adding or Removing Members

New members trigger amendments to ownership percentages, capital accounts, and potentially voting rights and management structure. Departing members may require similar updates.

Significant Business Changes

Major pivots in business model, new lines of business, or substantial growth may require adjusting management authority thresholds, voting procedures, or distribution policies.

Capital Structure Changes

New capital contributions, debt financing, or outside investment may require updating capital account provisions, distribution priorities, or governance structures.

Relationship Changes

If member relationships deteriorate, you might need additional dispute resolution procedures or clearer exit mechanisms. If relationships strengthen, you might relax certain restrictions.

Law Changes

Changes to Florida LLC statutes or tax law may require operating agreement updates to maintain optimal tax treatment or legal compliance.

Amendment Procedures

Most operating agreements require amendments to be:

• In writing
• Signed by all members (or specified supermajority)
• Attached to or incorporated into the original agreement
• Provided to all members

Maintain a complete, current copy of the operating agreement including all amendments. Store it with other critical business records.