How to Create a Flawless Single Member LLC Operating Agreement in Florida

All About Florida Single Member LLCs

A single member LLC is an LLC that is owned and operated by a single person, usually a natural person. A Florida single member LLC is a very popular business structure. One reason for the popularity of the single member LLC structure is its simplicity and ease of operation for a business owner, allowing flexibility and low operating costs with no need for meetings and other formalities.
The requirements for a Florida single member LLC are not any more involved than the requirements for an LLC with more than one member. For example, to form a Florida single member LLC the owner of the LLC must prepare and file the following documents with the Florida Secretary of State:

• Articles of Organization. This document includes basic information about the company, such as the name and principal place of business. In Florida, the entity formation documents, such as articles of organization, are filed with the Department of State, Division of Corporations and are generally considered public documents.
• Statement of Authorized Representative for Single Member LLC. Florida authorizes the filing of the Statement of Authorized Representative for Single Member LLC Form for the purpose of authorizing an agent to act on behalf of the LLC’s sole member. This agent may be asked to sign contracts or perform other duties in connection with the operation of the business.
• Written Operating Agreement. Under Florida law, single member LLCs are not required to have a written operating agreement. However, it is recommended that even a single member LLC prepare, adopt and maintain a written operating agreement. A written operating agreement is recommended because it provides a framework for operating the LLC with statements and procedures explaining how the company will be managed. While a single member operating agreement is not mandatory , it provides the member an opportunity to define the purpose of the LLC, governance procedures, debt obligations, distributions, and what happens if the owner dies or becomes disabled. For example, what happens to the company or its assets? When and how can the single member change, add or remove a member? If the company goes bankrupt, can the single member be held personally responsible for the debts of the company? With a single member operating agreement, the terms are decided and specified by the member for future reference.

If no clauses are specified in the written operating agreement (or the single member does not have one), Florida law provides that the member or member’s estate may be the only members that can participate in the management of the company. On the other hand, without a written operating agreement, Florida law also provides that the single member may be held personally responsible for the debts of the company if the member is found to have commingled personal and LLC funds. As specifically set forth in Florida law, when an individuals’ personal funds and the funds of the LLC are not clearly separated, a creditor of the LLC can seize the assets of the member or member’s estates as well as the assets of the LLC. The assets of the LLC will be available even though the other members of the LLC may be not be personally liable for the debts or debts of the LLC. Virginia Business Corporation Act, § 13.1-1015.
As with a multi-member LLC, single member LLCs can elect to be taxed as a corporation rather than as a disregarded entity. The Federal tax code does not require a separate return for a single member LLC. 26 CFR §1.1446-3. However, a single member LLC may elect to be classified as a corporation for investor and tax purposes. Form 8832: Entity Classification Election may be used for this purpose.

The Importance of an Operating Agreement

For any LLC, the operating agreement serves as a foundational document that brings significant legal protections and operational clarity to the business. This is especially true for single member LLCs operating in Florida. Even though Florida law allows single member LLCs to operate without a formal written operating agreement, having one in place is still absolutely essential.
A written operating agreement will serve two primary and important roles for your single member LLC. First, the legal protections it lends to your business cannot be overstated. If you are sued outside of Florida, having a written operating agreement can be key to showing that your LLC is a legally distinct entity. In the absence of an operating agreement, foreign courts tend to disregard the limited liability protections of an LLC where there is one owner. An operating agreement will demonstrate to foreign courts that your LLC is a credible business entity conducted according to the appropriate formalities.
Second, an operating agreement is what makes an LLC distinct from a corporation. It allows managers and business owners to avoid Florida state default regulations, which typically govern the way corporations are run. This creates flexibility when forming an LLC because your business can operate the way that best suits your needs, rather than strictly complying with statutory corporate requirements. At its core, an operating agreement is always changeable. As your needs evolve, the operating agreement can grow and morph as appropriate. Conversely, state law regulations are not temporary and are unlikely to change as your business undergoes adjustments.

Essential Features of an Operating Agreement

In any business or individual endeavor, a well thought out plan is crucial for success. In the world of LLCs, an operating agreement, or LLC "bylaws", serves this purpose. A single member LLC operating agreement is a powerful document that require careful formulation. An operating agreement provides the rules and guidelines for how the LLC will be run. That means everything, from how profits and losses are allocated to how to handle the departure or addition of a new member, is set forth in detail.
Below is a short list of some key provisions that should be covered in a single member Florida LLC operating agreement:
Business Purpose
In Florida, a limited liability company can be formed to operate within any legal business purpose. However, there may be some operational side benefits to setting forth the purpose of your LLC. In some cases, it may be pertinent to set forth a specific purpose for your company. This may not be necessary for every single member LLC. Nevertheless, the purpose of running a particular type of business can help solidify that the company is a legitimate business or engage in business related activities. For example, you may want to draft the following statement:
The purpose for which this Company is formed is to actively engage in …
Financial matters
There are a number of financial issues that should be addressed in the operating agreement. In addition to other issues that may be pertinent to a single member LLC, Florida LLC operating agreements should address the allocation of capital contributions and distributions, payment of profits and losses, and the method documented for maintaining/keeping the records of the business.
Succession Planning or Transfer of Ownership
In the event that a member passes away, or if a member wishes to sell his or her membership interest, it is important to have a predetermined process in place to handle such a situation. A simple buy-sell agreement built into your LLC operating agreement will answer many of the questions related to succession planning.

How to Draft Your Operating Agreement: A Step-by-Step Guide

Drafting an operating agreement can feel like a daunting task for a single member LLC. Fortunately, the task is not as difficult as seems when one follows a step by step guide.

Step 1: Identify Your Purpose and Needs

When you sit down to draft your Florida single member operating agreement, it is also helpful to outline what your goals are. Whether its simply establishing your company’s rules or attracting investors to grow your company, it is important that your document reflect your needs.

Step 2: Do an Initial Draft of Your Agreement

Once your goals are established, it is time to write up an initial draft of the document. Since this document will serve as a partnership contract, it is important to remember that the typical requirements will be defined by you. Therefore, you will want to make sure that your agreement spells out all pertinent details in order to clearly establish all agreements.

Step 3: Review Your Document

Once you have completed your agreement, it is wise to review the document again as well as the documents you currently have on file . Compare them with the operating agreement you have just drafted. Are there any changes you would like to make?

Step 4: Get Help from an Attorney

Finally, it is recommended that, if possible, you seek out the help of an attorney that has experience in helping with LLCs in Florida. While one person may have a clear idea of what they want, they may not know about all the interpretations the court may make in reference to an agreement.
When lawyers take on a case, they are not only there to help ensure that all the documents are written properly, but they are also there to make sure that all bases are covered. For instance, if someone was considering using their LLC business to ensure future income after retirement, an attorney would be able to provide adequate advice on how this could be accomplished.

Step 5: Check for Updates

After completing your agreement, you should consider going through the document again every year or so to check for updates. As your business evolves, there may be several aspects that could use an update as well.

Pitfalls to Avoid

One of the most common pitfalls when creating a single member LLC operating agreement is lack of foresight. A prudent approach is to anticipate the future operations of the company and include anticipatory clauses in the operating agreement. A second common mistake is failing to comply with statutory requirements specifically for single member LLCs. Single member LLCs have unique requirements that must be followed and are distinct from multi-member LLCs. Take precautions to ensure that while limited liability is intended, the operation of the LLC does not undermine it. A third common mistake is assuming the single member has the ability to amend the operating agreement without following the proper procedures. Amendments should be made in accordance with the procedures set forth in the initial operating agreement and statutory requirements for single member LLCs. Failure to specify how distributions will be made after winding up and dissolution may damage the company. All distributions should be made in accordance with the terms of the operating agreement. Finally, many single member LLCs fail to stipulate whether they will be managed by a manager or operate solely under the direction of single member. It is important to be clear so as to limit liability.

Modifications & Amendments to Your Agreement

Crafting the language of your LLC Operating Agreement as precisely as possible is an important step in ensuring your agreement is living and breathing document that will serve you well for many years to come. However, life happens, and even the most precise ‘comprehensive’ LLC Operating Agreement cannot anticipate the wide range of changes which will occur during the life of your business. For this reason, it’s essential to review your LLC Operating Agreement regularly, and make any necessary revisions to preserve the original intent of the document. For example, you might need to amend your LLC Operating Agreement to include new members, to add additional business provisions, or to adjust the procedures for transferring membership interests. Regardless of the changes that may arise, it’s essential to have a procedure in place when it comes for updating your LLC Operating Agreement. Florida law governs the process for amending your LLC Operating Agreement, along with any other provisions that pertain to your LLC. It states: Except as otherwise provided in a limited liability company’s operating agreement or article of organization, the following rules shall apply: (1) A limited liability company may amend its articles of organization or operating agreement either (a) as permitted by the operating agreement or (b) upon the approval of all of the members. (2) If amendments to the articles of organization or operating agreement do not contain any provisions inconsistent with those contained in the rest of the articles or operating agreement [which apply] , the articles or operating agreement as amended constitutes the certificate of organization or operating agreement of the limited liability company [which apply]. Regardless whether you are amending your LLC Operating Agreement upon the majority vote of all members or as permitted by the operating agreement, these rules emphasize the importance of having a comprehensive process in place to make updates to your LLC Operating Agreement. The terms of this amendment should be expressly outlined in the LLC Operating Agreement itself. Should you need or choose to amend your LLC Operating Agreement, the process for doing so is fairly simple, and largely centers around communication and collaboration. As with any change, it is crucial to communicate with all the members of your LLC the need for the amendment, and to collaborate with them throughout the revision process. Depending on the terms of your LLC Operating Agreement, you may need a unanimous or simple majority consent to update and amend your Operating Agreement. The key is to proceed with caution, and ensure all members are aware of and agree with the proposed changes before amending your LLC Operating Agreement to avoid unnecessary conflicts and disagreements in the future. Amending your LLC Operating Agreement is just one of the many considerations that must be made when establishing and maintaining a successful Florida Limited Liability Company. In our next post, we will discuss the need to update your LLC Operating Agreement in the unfortunate event of a death, or marital dissolution.