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The Power of the Operating Agreement and Ownership Rights in the Florida World of LLC’s
On behalf of Margules Law Group, P.A. | 07/22/2021 | Firm News
Florida first authorized LLCs through legislation in 1982 and today, there are currently close to 1.5 million LLCs registered with the Florida Department of State. This makes LLCs the most popular form of entity in Florida. With the abundant amount of small businesses, it is inevitable that some companies will not survive. In the expanding world of closely held businesses, many have found themselves seeking the assistance of counsel to assist them with their affairs.
Any LLC “break-up” begins with the dissociation of one or more of the members, or a voluntary or non-voluntary judicially ordered dissolution of the company. Whether an agreement exists substantially impacts the consequences and/or circumstances under which a member can sell their stake in the business and for how much, or what happens to the company upon dissociation of a membership interest or dissolution of the company.
A dissociation occurs when one or more partners involved in the LLC or other business entity chooses to cease their involvement in the business. A member can even transfer their management and control, but retain income from their ownership interest. A dissolution occurs when the business is formally closed with the state. LLCs must totally stop operations of the business through the filing articles of dissolution. Can be voluntary or judicially ordered (non-voluntary).
Where a business does have an agreement, it dictates the direction of the company from the day a member decides to dissociate or a dissolution occurs. These agreements are typically referred to as “operating agreements”. A businesses’ operating agreement usually also includes language governing disputes amongst ownership, directions on how to value each member’s share of ownership, and the extent of each member’s right to manage the company and it’s assets.
In the event of a dispute amongst ownership, Florida statute provides members of an LLC with certain powers and access to substantial information, such as the right to to review the operating agreement, the company’s tax returns, or to have an overall accounting of the business to gain an understanding of its financial standing and activities. These rights to disclosure cannot be waived and provide members of a Florida LLC with crucial access to the company. In the case where the company is not allowing an individual to assert their right to this information, the Florida LLC statute allows for legal intervention. In the case that an attorney is needed to take this matter to the courts. It is common for the court to impose payment of attorney's fees to the company upon obtaining access to the documents through a judicial order.
Having a proper operating agreement should be a tedious task in that every provision in the agreement should protect the members of the company from losing their interests in the income and management of the business, and provide a roadmap to the long-term success of the company. Having a proper document which governs potential disputes among members is also essential to the success of the company and empowers its members to operate in good faith, together, to ensure this success. Whether you are a sole member, or co-member of your LLC, be sure to hire experienced business attorneys who can properly guide you through the drafting process, advise you through the ups and downs of your operation, help you avoid conflicts, and protect your interests in times of dispute.