OPERATING WITHOUT AN OPERATING AGREEMENT?

THINK AGAIN.

OPERATING WITHOUT AN OPERATING AGREEMENT? THINK AGAIN.

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You decided to form a business with someone else, or are bringing an investor into your business.  Do you have a document governing the relationship between the two of you?  If not, you should.

Depending on the type of business entity you are operating, this document can go by many different names.  However, one of the most common names used is an “operating agreement.”  Regardless of the name, it is important to have some sort of written document with the other equity holders of your business entity outlining your relative obligations and amount of equity.

As a general matter, the issues which are discussed in such agreement are easier to resolve earlier on in the relationship.  At this stage, both parties typically have an incentive to see the business relationship work, and thus, will be more willing to compromise in order to accomplish that goal.

One important issue to consider in drafting an operating agreement is the amount of equity each party to the relationship is going to have in the business entity.  In Florida, depending on the circumstances, you often cannot be granted equity in a company unless it is in writing.  See generally Fla. Stat. § 725.01 (“No action shall be brought … upon any agreement that is not to be performed within the space of 1 year from the making thereof, … unless the agreement or promise upon which such action shall be brought, or some note or memorandum thereof shall be in writing and signed by the party to be charged therewith….”).

A number of forms for these documents can be found online, and, in Florida a series of statutes define the default rules for business entities.  Florida’s Revised LLC Act governs most LLCs within the state.  Florida’s Business Corporation Act governs most corporations.  In drafting an operating agreement, you should look to the relevant statutes for your particular business entity for ideas.

You should also consider hiring an attorney to draft an operating agreement that would account for the particulars of your situation in a manner that is likely more comprehensive than anything that can be found online.  Although this will likely be pricier than using a form, it can often save you a lot more money in the long run by helping to assure you address potential disputes before they become actual disputes.  Consider a free consultation with Xander Law Group in Miami, Florida to help determine if this approach is right for you.