When creating a single-member LLC, an operating agreement may seem like yet another piece of paperwork. And as it’s not legally required in Florida, you may think you can skip a step. If so, reconsider. We highly advise it to ensure stability and liability protection with your business moving forward.
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What Are Single Member LLCs?
A single-member LLCs is a term given to a Limited Liability Company with just one owner. It is one of the most common kinds of business structures in Florida, often used for side hustles and passion projects. They come with the same pros and cons as multi-member LLCs.
Read Related: How to Start an LLC in Florida
What Key Documents Do Single-Member LLCs Need?
The two key documents you should be aware of when forming an LLC are:
- Articles of Organization
- Operating Agreement.
We go into Operating Agreements in detail below. But as a heads up, Articles of Organization need to be filed in Florida for your business to be ‘official’. The document will state your legal name, the company’s purpose, estimated duration, registered agent and management structure.
What is an Operating Agreement?
An Operating Agreement is a contract made between LLC members. It outlines the financial and functional decision-making of the company, including the members’ duties, rights and responsibilities.
Critically, it dictates what should happen if a member leaves, fails their duties or a member wants to sell their interest in the company.
OK, But Why Do I Need an Operating Agreement as a Sole-Member?
Good question. In Florida, you’re not even legally obliged to have an operating agreement. But the answer is for your protection.
Why do Single Member LLCs Need an Operating Agreement?
Liability Protection
Operating agreements are great at protecting your personal assets. This is one of the reasons you probably created an LLC in the first place, so don’t let yourself down by avoiding some paperwork.
Liability protection is ensuring that your business entity is liable for any lawsuits or claims, rather than your personal assets. An operating agreement allows for liability protection by separating members from the company.
To Avoid Default Florida State Rules
If your single-member LLC doesn’t have an LLC, Florida’s default state laws will apply to your LLC. While these rules are often OK, they can provide unwanted results.
For example, your spouse or child may inherit the assets of your LLC if you pass away or become incapacitated. This may not be the outcome you’d like. For example, you might prefer the assets are sold or the business is inherited by a close friend.
An operating agreement is critical in providing a custom path for what happens if you want your business to be taken over by someone of choice.
For Banks and Investors
When turning to banks for business loans, or are on the verge of gaining investment, then you may be asked for the operating agreement to prove that you own the LLC and have a solid plan moving forward.
What a Single-Member LLC Operating Agreement Should Include:
Purpose and Jurisdiction
Your LLC should act within the limits of its state purpose. This should be as specific as possible to your industry and business type, but also include changes in products and services you may sell. You must also list the jurisdiction your LLC will operate in.
Ownership and Shares
- How and when the owner (you) should contribute capital to the LLC.
- How profits and losses are determined and distributed.
- What happens to your account if you leave, die, are divorced or become incapacitated?
Management of an LLC
As a single-member LLC owner, you will manage everything. But if you decide to hire a professional manager to reduce your workload, you should detail how the LLC must be managed.
Policies
Policy decisions should be recorded even as the only member. For example, record all your decisions of bank selection and legal counsel or accountants.
Transfer of Ownership
Single-member LLCs should have a section in their operating agreement that covers what should happen if they can no longer manage the business. The procedures should be described in detail.
Intellectual Property
Your operating agreement can include in language the details of what intellectual property (IP) the LLC owns and has the right to license. This may have been created by yourself or independent contractors.
What Happens If I Add Another Member to My LLC?
If you want to expand your business beyond the sole member size, then you’ll need to update your LLC’s operating agreement as per your agreement with the new member(s).
The more members you add, the more important an operating agreement becomes. But even one person added makes it critical, as you’re not impacted by the decisions and behaviors of another individual.
Do I Need a Lawyer for an LLC’s Operating Agreement?
It’s highly advised that you hire a Florida business contracts lawyer when drafting and reviewing an LLC operating agreement. You don’t want to start your business with a bad start, leaving you open to liability or issues later down the line.
Hire a Business Contract Lawyer in Riverview and St. Petersburg, FL
If you need to draft an Operating Agreement in Florida, then our Florida business contract lawyers can help you write a watertight and optimized document that ensures liability protection and maintains your vision for your LLC’s future.
We regularly help single-member LLC owners create Operating Agreements.
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Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced estate planning attorneys, they can help you create a will or trust.
