Does My LLC Need an Operating Agreement?
Why Every Florida LLC—Even Single-Member and Two-Member Companies—Should Put It in Writing
If you've recently formed a Limited Liability Company (LLC) in Florida, or you're planning to, one of the most common questions is: Do I really need an operating agreement? Florida law doesn’t technically require it. However, as a business attorney with over 30 years of experience advising entrepreneurs and established businesses, I can assure you—yes, you absolutely do.
An operating agreement is much more than a formality. It's the blueprint for how your business functions. Whether you're the sole owner, co-owning with someone, or bringing in outside investors, a well-drafted operating agreement protects your interests, defines roles, and prevents costly disputes down the road.
What Is an Operating Agreement?
An operating agreement is a private contract among LLC members that lays out the company’s ownership, management structure, and financial arrangements. It defines how decisions are made, how profits are distributed, and what happens if a member wants to leave—or if a dispute arises.
Why Every LLC Needs One
1. Preserve Limited Liability Protection
For single-member LLCs, failing to keep business and personal affairs separate can jeopardize your limited liability status. An operating agreement helps establish that your LLC is a legally distinct entity—an important factor if you're ever sued or audited.
2. Custom Financial Arrangements—Including Priority Distributions
Florida’s default LLC laws assume profits and losses are split in proportion to ownership, but your agreement can—and often should—say otherwise. For example, suppose one member contributes all the startup capital, or outside investors fund the initial operations. Your operating agreement can specify that those members or investors receive priority distributions until they’re repaid, before profits are shared among all members. This kind of flexibility is one of the biggest advantages of the LLC structure, but without a written agreement, those expectations may not be legally enforceable.
3. Avoid Deadlock in Two-Member LLCs
LLCs with two equal partners are especially vulnerable to deadlock. What happens if you disagree on a major decision and neither has final authority? Without a clear deadlock resolution mechanism—such as third-party mediation, buy-sell rights, or casting votes—your business could grind to a halt, or worse, end up in court. A well-crafted operating agreement should anticipate these scenarios and provide a fair, efficient solution.
4. Protect Relationships and Avoid Disputes
Even among close friends or family members, business arrangements should be put in writing. People's memories differ, and relationships can change. Your operating agreement clarifies expectations, ownership percentages, roles, and what happens if someone wants to exit the business, retires, or passes away.
Key Topics Your Operating Agreement Should Cover
A thorough operating agreement typically includes:
Ownership percentages and capital contributions
Profit and loss allocations, including any priority returns to certain members
Voting rights and decision-making authority, how are major decisions made: one vote per member or based on ownership percentage?
Management structure – member-managed or manager-managed
Roles and responsibilities of each member or manager
Deadlock provisions for resolving disputes in two-member or evenly split ownership
Buy-sell provisions, outlining what happens if a member wants out
Transfer restrictions, to prevent unwanted partners from joining
Dissolution procedures, for winding up the business
What Happens Without One?
If you don’t adopt an operating agreement, Florida’s Revised LLC Act (Chapter 605, Florida Statutes) imposes default rules. While they provide a legal framework, they’re not tailored to your unique business needs. For example:
Profits and votes may be split equally—even if one partner invested more or does more work.
There’s no priority return for investors unless expressly agreed upon.
There’s no built-in solution for member deadlock.
A departing member could force dissolution in certain situations.
Default rules are often vague or unfavorable. Without clear documentation, disputes can escalate and leave your business vulnerable to misunderstandings or costly legal disputes that drain resources and strain relationships.
Final Thoughts
No matter how small your business is—or how much you trust your partner—you need an operating agreement. It’s your LLC’s most important document.
The flexibility of the LLC structure is one of its greatest strengths—but only if you take the time to document your agreement properly. Generic online forms can’t substitute for a customized contract that reflects your business’s actual structure, finances, and relationships.
Your business is unique, and your agreement should be, too.
Need help drafting or reviewing your LLC’s operating agreement?
Based in Boca Raton, FL, I have decades of experience helping businesses get it right from the start. If you're forming an LLC or need help reviewing or drafting an operating agreement, reach out today to schedule a consultation. The time and investment you make today can save you from expensive headaches tomorrow.