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What to include in your business operating agreement

On Behalf of | Jul 28, 2023 | Business Litigation |

According to the U.S. Census Bureau, business owners started almost 700,000 new businesses in Florida in 2022. If you started a new business, you know there can be many documents you must complete. One essential document, the business operating agreement, will help you maintain smooth operations. This document sets the rules, rights and responsibilities within your business, offering a clear roadmap for your team.

Though Florida law does not require an operating agreement, having one can prevent potential conflicts and misunderstandings. It allows you to structure your business to meet your needs, and it is helpful to know what you should include in it.

Establish your business structure

Your operating agreement must define the structure of your business clearly. Are you operating as a sole proprietor, limited liability company, partnership or corporation? This section should describe how you have chosen to run your business.

Define membership and ownership

You must state who owns your business or who the members are in your agreement. This should cover their names, contact details and each person’s business ownership percentage. This section should also explain how you will handle future changes to ownership.

Assign management roles and responsibilities

In your operating agreement, you need to specify who will manage your business. Include the responsibilities and powers of each manager or managing member. This section should also lay out the process for selecting managers, their service terms and the procedure for their removal.

Set financial arrangements

It is also important to include details about the capital contributions of each member, the distribution of profits and losses and the procedure for adding additional capital. Indicate how your business will manage financial records and audits here.

Determine voting rights and procedures

Describe how decision-making will happen in your business. Include the voting rights of each member, which decisions require a vote and the process for casting votes. This section should clarify the method for decision-making within your business.

Outline dissolution process

Your operating agreement should have a plan for potential dissolution. It should explain the conditions that may cause dissolution and the method of asset distribution among members if dissolution happens.

Creating a comprehensive business operating agreement is important for your Florida business’s success. This document provides clear guidelines for your business’s internal operations, and carefully crafting this document will establish a strong foundation for your business.