Florida LLC Operating Agreement

The Florida LLC operating agreement is one of a Florida LLC’s two essential formation documents. The other essential formation document is the articles of organization that are filed with the Florida Division of Corporations. Both of these key documents are prepared as part of the Florida LLC formation process.

An LLC’s operating agreement serves as a blueprint for the company’s affairs and operations—describing important issues like control of the LLC, distribution of profits, and the rights and duties of the LLC owners (called members) and managers.¹ An operating agreement is highly customizable and lets business owners take maximum advantage of the flexibility and planning opportunities offered by the limited liability company business structure.

LLC laws are set at the state level. Florida law is unique, so a Florida LLC’s operating agreement must be prepared specifically for Florida law. Generic, one-size-fits-all operating agreements do not let business owners tailor their operating agreements to their business plans or to the requirements and benefits of Florida LLC law.

The Operating Agreement’s Role in the Florida LLC Formation Process

A Florida LLC’s legal existence begins when a simple, two-page form—the articles of organization—is filed with the Florida Department of State’s Division of Corporations.² An LLC’s articles of organization is a publicly available document with only a handful of provisions designed to identify the LLC and list its registered agent in the state records.

The articles-of-organization form that the Division of Corporations publishes does little to structure the business. The form says nothing about how profits will be divided, when and whether the LLC should make distributions, who controls the LLC and how important decisions are made, and the rights and obligations of the LLC member and managers. The Florida Revised Limited Liability Company Act—the primary Florida law governing LLCs—assumes that those issues will be covered by the company’s operating agreement.³

An operating agreement is sometimes called an LLC’s constitution. It is effectively a contract between the LLC’s members and the company itself—describing the company’s structure and the relationships between members and the company (sometimes called the LLC’s internal affairs).⁴

What Issues Do Florida LLC Operating Agreements Address?

Florida LLC law says broadly that a company’s operating agreement governs:

• Relations among the members as members and between the members and the LLC;
• The rights and duties of managers;
• The activities and affairs of the LLC and the conduct of those activities and affairs; and
• The means and conditions for amending the operating agreement.⁵

A wide variety of important issues fall within these categories. Operating agreements typically address financial issues like tax classification, allocation of profits and losses, distributions to members, and sales of company assets. An operating agreement describes when and how members can transfer their ownership rights (called membership interests); when and how new members may be admitted; and the standards for a merger, conversion, or domestication involving the company.

An operating agreement also helps a business run smoothly by outlining how important decisions are made—whether managers or officers can decide an issue or whether a member vote is required. A well-planned operating agreement created early in the LLC’s existence reduces member conflict by deciding in advance how important matters will be addressed. And, in case a member dispute arises, an operating agreement can include a procedure for resolving the disagreement before it results in expensive legal action.

An operating agreement may be useful even if an LLC has only one member. A single-member LLC’s operating agreement can, for example, split the company’s ownership and management—reducing the risk of losing control of the LLC to creditors—and lay out a succession plan in the event of the member’s death.

Is an Operating Agreement Required to Form a Florida LLC?

The Florida Revised Limited Liability Company Act does not technically require an LLC to have a written operating agreement.⁶ An LLC can exist without adopting an operating agreement, but it is generally unwise to do so. Neglecting the operating agreement prevents members from customizing the LLC’s structure and internal affairs to their business plans and goals. In an operating agreement’s absence, members cannot take full advantage of the tax-saving, asset protection, and strategic opportunities that the limited liability company model allows.

How Does an Operating Agreement Relate to Florida LLC Law?

A Florida LLC whose members fail to prepare an operating agreement is governed by default provisions of the Florida Revised Limited Liability Company Act. In other words, the Florida Legislature’s all-purpose rules control the company in place of provisions decided on by the members. As mentioned above, the Florida law generally assumes that members have better insight into their business than Florida officials and that they will therefore create an operating agreement. The statutory default rules are a backstop.

With limited exceptions (discussed below), Florida law is only relevant if a company has no operating agreement or if the operating agreement does not cover a specific matter.⁷ If both the operating agreement and the Florida LLC statute address an issue, the operating agreement takes precedence—unless the issue happens to fall under one of the non-waivable provisions of the law.

Are There Florida LLC Laws that an Operating Agreement Cannot Waive or Modify?

While the Florida Revised Limited Liability Company Act generally defers to the operating agreement, there are a handful of exceptions. ⁸ These exceptions—called non-waivable provisions—restrict the operating agreement’s ability to vary the statute’s default provisions in several areas.  A Florida LLC operating agreement may not:

• Vary a limited liability company’s capacity to sue and be sued in its own name;⁹
• Change the requirement that Florida law governs Florida LLCs;¹⁰
• Vary the requirement that a Florida LLC appoint a registered agent or the requirement to file with the Florida Secretary of State;
• Change the provisions of Florida law that allow third parties to petition a Florida court to enforce a required LLC filing;¹¹
• Eliminate the duty of loyalty or the duty of care (but see below for permitted modifications);¹²
• Eliminate the obligation of good faith and fair dealing (but the operating agreement may set standards for measuring performance of the obligation if the standards are not manifestly unreasonable);¹³
• Relieve or exonerate a person from liability for conduct involving bad faith, willful or intentional misconduct, or a knowing violation of law;
• Unreasonably restrict the LLC’s record-keeping duties or the rights of a member (current or dissociated) or manager to access those records (but the operating agreement may impose reasonable restrictions on the availability and use of information and may define appropriate remedies, including liquidated damages, for a breach of a reasonable restriction on use);¹⁴
• Vary the grounds for judicial dissolution (but a deadlock resolution mechanism is not considered a variance);¹⁵
• Vary the requirement to wind up a dissolved LLC’s business, activities, and affairs;¹⁶
• Unreasonably restrict the right of a member to maintain a direct action against another member, a manager, or the LLC to enforce the member’s rights or to maintain a derivative action to enforce the LLC’s rights;¹⁷
• Vary the rules applying to a special litigation committee in a derivative action (but the operating agreement may provide that the LLC may not appoint a special litigation committee, as long as it does not prevent a court from appointing doing so);¹⁸
• Vary the right of a member to approve a merger, interest exchange, or conversion;¹⁹
• Vary the required contents of a plan of merger, a plan of interest exchange, a plan of conversion, or a plan of domestication;²⁰
• Except as explicitly permitted in the rules that govern operating agreements, restrict the rights of a person other than a member or manager;²¹ or
• Indemnify a member or manager for certain misconduct, conflicts of interest, improper distributions, or breach of fiduciary duties owed to the LLC.²²

Can a Florida LLC Operating Agreement Modify Members’ and Managers’ Duties?

Florida law does not allow an LLC’s operating agreement to eliminate the duty of loyalty, duty of care, or obligation of good faith and fair dealing owed by members or managers.²³ An operating agreement can, however, modify members’ and managers’ duties in several ways—as long as the modified provision is not “manifestly unreasonable.”²⁴

• The operating agreement can alter or eliminate the aspects of the duty of loyalty dealing with a members’ or managers’ obligation to account to the LLC for any property, profit, or benefit derived from the LLC’s affairs, use of company property, or appropriation of a company opportunity.
• The operating agreement can identify specific types or categories of activities that do not violate the duty of loyalty.
• The operating agreement can alter the duty of care owed by a member or manager—as long as the change does not authorize willful or intentional misconduct or a knowing violation of law.
• The operating agreement can alter or eliminate members’ or managers’ other fiduciary duties (other than the duty of loyalty and duty of care).

A Florida LLC’s operating agreement can provide for authorization or ratification of a member or manager’s action or transaction that would otherwise violate the duty of loyalty. To do so, the operating agreement describes a method that one or more disinterested and independent persons employ to authorize or ratify the member’s or manager’s act or transaction after full disclosure of all material facts.²⁵

An operating agreement may also modify the rules that apply to improper distributions so that a distribution is considered proper as long as the LLC’s assets exceed its liabilities.²⁶ Absent the modification, the Florida standard for LLC distributions adds the requirement that the LLC be able to pay any preferential distribution rights to members and transferees before making a distribution.²⁷

It’s important to note that under the Florida Revised Limited Liability Company Act, and individual’s duties follow his or her responsibility. If an LLC is manager-managed (not member-managed), then the LLC’s members do not owe the fiduciary duties of loyalty and care solely by virtue of being a member.²⁸ Or, if an LLC is member-managed and the operating agreement relieves a member of a responsibility and assigns it to someone else, the operating agreement may eliminate or limit that member’s duty or obligation that relates to that responsibility.²⁹

Preparing an Operating Agreement for a Florida LLC

Every Florida LLC should have an operating agreement that is tailored to the members’ business plan, management model, and operational structure. Florida law has unique requirements for LLCs and their operating agreements. Each Florida operating agreement should be drafted to reflect the members’ preferences and with Florida’s legal requirements in mind. Relying on a generic operating agreement form that was not specifically designed for use in Florida could be disastrous to the LLC.

1. Fla. Stat. § 605.0105(1).
2. Fla. Stat. § 605.0201(4).
3. Fla. Stat. § 605.0105.
4. Fla. Stat. § 605.0106.
5. Fla. Stat. § 605.0105(1).
6. Fla. Stat. § 605.0105(2).
7. Fla. Stat. § 605.0105(2).
8. Fla. Stat. § 605.0105(3).
9. See Fla. Stat. § 605.0109.
10. See Fla. Stat. § 605.0104.
11. See Fla. Stat. § 605.0204.
12. See Fla. Stat. § 605.04091.
13. See Fla. Stat. § 605.04091(4).
14. See Fla. Stat. § 605.0410.
15. See Fla. Stat. § 605.0702.
16. See Fla. Stat. § 605.0709.
17. See Fla. Stat. §§ 605.0801 – 605.0806.
18. See Fla. Stat. § 605.0804.
19. See Fla. Stat. §§ 605.1023(1)(b); 605.1033(1)(b); 605.1043(1)(b).
20. See Fla. Stat. §§ 605.1022; 605.1032; 605.1042; 605.1052.
21. See Fla. Stat. §§ 605.0106 and 605.0107.
22. See Fla. Stat. § 605.0408
23. Fla. Stat. §§ 605.0105(3)(e) and (f); See Fla. Stat. § 605.04091 (describing duties of members and managers).
24. Fla. Stat. § 605.0105(4)(c).
25. Fla. Stat. § 605.0105(4)(a)(i).
26. Fla. Stat. § 605.0105(4)(a).
27. Fla. Stat. § 605.0405(1)(b).
28. Fla. Stat. § 605.04091(1).
29. Fla. Stat. § 605.0105(4)(b).