What Should Go Into a Florida Business Operating Agreement?
Florida business litigation attorney L. Reed Bloodworth, the managing partner of Bloodworth Law, discusses what should go into a Florida operating agreement. Part 2 in the series talks about protection inside the business ownership.
This is Part 2 in the series: Inside the Business Ownership
Reed explains that a business operating agreement should be created when a business is formed. It clarifies ownership responsibilities, financial agreements, revenue management, and member roles in the business.
A group of people wanting to form an LLC or other business entity will want to put limits on the ability to transfer ownership. And how you transfer a Florida business interest to someone else should be explained in the operating agreement.
You do this because no one in a business will want any of the other members being able to just give the business ownership to someone else. The other members may not like the other person, or may not approve of them.
Transfer of Ownership
Also included in a business operating agreement are what steps are taken to add new members to a business, or how do you transfer Florida business membership interests to a family member, or maybe even a family trust?
This issue of transfer of ownership could come up and decisions will have to be made. You want to put limits on how transfers happen. You want to set forth what happens when a member wants to leave. And you want to set out how you bring in new members.
For example: What happens when one of the members goes through a divorce?
Reed said he makes sure that a member’s interest is protected so that a spouse doesn’t suddenly take the membership interests, and, also their part of an LLC.
A Business Operating Agreement Answers:
- How you’re going to handle a third party
- What happens to the interest
- What happens when you need to disassociate a member
- What if a member wants to sell their interest
- What happens if there is a death in a partnership or an LLC
If someone passes away, or someone walks out, or someone just wants to sell their interests, you’d want to know how to handle it and put into the agreement. This includes:
- A determination of the purchase price and terms of payment
- How to exercise redeeming a membership interest when a member dies
- And, how to value the membership interest
You’d want to know what happens if the company dissolves, so you’ll put that into the agreement.
How Can You Hold Onto Ownership?
Often times when some of these issues are going on, the other members want the right to match whatever offer so that they can keep the membership interest to themselves. And keep the members that they know and want in there, and not bring in an unknown.
And then, what if it called for the determination of a price to either sell to a third party, or, for the other members to buy out the member that walks out, and buy their interests back?
You put into the agreement, how you’re going to value it? And then, you put into the agreement how the terms of the purchase are going to happen.
You do all of this at the beginning of the partnership so that you don’t have to have a large dispute over it.