What are the hazards faced by a small business? We can spot the obvious dangers: direct competitors, suppliers who could destroy our bottom line with a single price hike and of course, legal troubles.
But just as often, there are dangers lurking from within. Disputes among owners or partners are common reasons for even a successful business to go off course. Preparing for this possibility is not only prudent but essential, no matter how favorable the company’s prospects may seem.
A popular form of business organization, especially for smaller enterprises, is a limited liability company (LLC). It offers the twin benefits of legal immunity for its owners and nontaxability of its earnings and assets. At the same time, it allows the owners — known as members — to run the business pretty much as though it were a sole proprietorship or partnership. Florida law does not even require an LLC to adopt an operating agreement to govern its management or to define the duties and privileges of its members.
But while an LLC operating agreement is not required by Florida law, pretty much every LLC should have one. It sets out the rights and responsibilities of the LLC members. It also may provide a procedure for a member wishing to make an early exit or for dissolution of the LLC as a whole in the event of financial difficulties or if members simply wish to move on to other endeavors.
Without an operating agreement, an LLC’s viability may be jeopardized if co-owners begin to resent each other for not holding up their end of the duties — even the duties that were never spelled out. Should members decide to withdraw, a dispute over the buy-out due them may end up in litigation. There can also be a crisis if a managing member becomes disabled or passes away and there is no business succession plan in place.
They say that failing to plan is planning to fail. An operating agreement is a vital document you need to set up your LLC properly. The business attorneys at Salas Law Firm help entrepreneurs in the Fort Lauderdale area with their formative planning and paperwork. To schedule a consultation, contact us online.