Why Have By-Laws or Operating Agreements?

If you are considering owning an LLC or corporation in Florida, bylaws or operating agreements are among the first documents that should be drafted for your business. Both by-laws for corporations and operating agreements for LLC lay out important principles upon which the business is to be run. The purpose of the document is to govern the business’s internal operations in a way that meets the business owners’ needs.

What are by-laws and operating agreements?
By-laws and operating agreements are decisions made among shareholders and co-owners about how the company should be governed. An operating agreement is the term used for a limited liability company (or LLC), while corporations have bylaws. Despite the difference in terms, the content in both documents is similar, and they can be considered to be equivalent documents.

Forming one of the core documents of the business, it should be written at the time of the company’s founding, but can be amended at any time to reflect changing circumstances or unforeseen factors. Many states require LLC’s and corporations to have an operating agreement or bylaws. Even if your state does not require this document, it is a very good idea to draft one. Once signed, this document is a legally binding contract, requiring the business to be run according to its terms.

Benefits of By-Laws and Operating Agreements
This is one of the most important documents a company will create, forming the foundation for how the company is run. It structures the financial and functional decisions of the company and governs internal operations of the business. This document also clarifies assumptions and verbal agreements to avoid future disagreements or misunderstandings, and can be referred to in the event of conflict. Commonly included in such documents are buy-sell agreements, voting rights and responsibilities, the powers and duties of members, shareholders and Directors, and the distribution of profits and losses.

Operating agreements for LLC businesses protect the LLC status of the company, while outlining the company’s own rules so that you do not need to rely on the state’s default rules, which govern LLCs that do not have a formal operating agreement. For example, in Florida the default rule is that LLCs are member managed, meaning that each member (or owner) has the rights and responsibilities to manage the business. If the members want management rights to be assigned only to specific members, an operating agreement is necessary.

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2018-01-30T13:07:49+00:00 April 4th, 2012|Blogs, Legal Advice|