A single member LLC operating agreement is simply a legal document that outlines the rules and bylaws of the single member LLC. Note that this operating agreement is created along with the articles of the organization during business formation, and it tends to apply to single-member LLCs as they need operating agreements to protect their liability.

The primary reason for the creation of a single-member LLC is to grant the single-owner personal asset protection. Under the ownership of a single-member LLC, the owner is no longer held liable for the actions of the LLC without the formalities required by a corporation. A Florida single-member operating agreement offers protection to avoid potential losses.

Florida law mandates that an LLC in its default state will be treated as a member-managed LLC unless the operating agreement or the Articles of Organization notes that it is a manager-managed LLC. Although an operating agreement for a single-member LLC is not mandatory in Florida, note that without it an owner will put their assets at risk should the business fail, or the business is involved in litigation.

Things to Include in a Single Member LLC Operating Agreement in Florida

A single-member LLC operating agreement is expected to contain certain information, and they include:

  1. Article I: Company Formation

This is the first section of the single-member LLC operating agreement and it is meant to cover these 4 functions:

  • Declare that the LLC has been or will be formed with the state
  • Outline key business information, including LLC name, registered agent, state, purpose, and principal place of business
  • Note the situations that can cause the termination of the business (and explain how the LLC can be continued)
  • Describe how to add new members
  1. Article II: Capital Contributions

Although you are the sole owner of your LLC, you still have to “buy in.” In simpler terms, you have to fund the LLC with money or other assets (initial capital contributions) in exchange for your ownership interest. In this section of the operating agreement, you will have to outline the total value of your contributions.

  1. Article III: Profits, Losses, and Distributions

This section is used to note how and when you get your money. Profits and losses are determined and allocated annually. Once you are done with paying business expenses and any liabilities, you can make distributions at any time. If your company or membership interest is liquidated, distributions will have to comply with Treasury Regulations.

  1. Article IV: Management

Being the only member in the LLC, you are more or less tasked with running the show. Owing to that, this section outlines your powers (control, management, direction, operations, etc.) and your responsibilities (signing contracts, keeping records, etc.).

Also, note that this section is meant to state that you are not personally liable for losses and damages to your LLC or expenses as a result of lawsuits or other actions against the LLC as long as you have acted in good faith.

  1. Article V: Compensation

While it might feel like you and the LLC are the same, it’s always pertinent to maintain a very vivid distinction. Owing to that, this section should note that if you incur an out-of-pocket expense or render a service to the LLC, you will be entitled to reimbursement or compensation.

  1. Article VI: Bookkeeping

This part of the operating agreement will have to note how you intend to keep financial records, including capital and distribution accounts. At the end of each calendar year, you will be expected to close the books and prepare a member statement.

  1. Article VII: Transfers

This is one of the most important sections of a single-member LLC, especially if your LLC is sued by creditors and they are then awarded membership interest. This part of the operating agreement is meant to note that such interest doesn’t include rights to participate in the management or operations of the LLC. Creditors instead will have to make do with distributions (and only until the debt is paid off).

  1. Article VIII: Dissolution

Have it in mind that you can end your LLC at any point through the process of dissolution. This section is where the process of dissolution is properly outlined; however, the LLC will still be expected to pay off its debts before making any distributions.

  1. Certification of Formation

Note that this is more or less the signature page. You sign to show that you concur to abide by the terms of the operating agreement.

  1. Exhibits

This is the last page of your operating agreement and tends to contain fill-in-the-blank exhibits. This exhibit includes places for you to outline your information (your name, address, and percent of ownership) and the details of your capital contributions.

Important Components and Clauses to Include in a Single Member LLC

When putting together an operating agreement for your single-member LLC, here are the top components and clauses to include;

  1. Member Financial Interest

When creating your operating agreement, you must include this clause to explain how you will be paid and the rights you have based on your respective membership interest.

  1. Corporate Governance

An LLC can be member-managed or manager-managed; therefore you need to outline how these managers or managing members will be selected, and who can appoint them. In addition, the operating agreement should express the powers of a manager or a managing member.

  1. Corporate Officer’s Power and Compensation

What are the officers authorized to make decisions for the LLC, and how are they appointed? The operating agreement is expected to state officer compensation and how that compensation is determined.

  1. Non-Compete

In recent times, court verdicts suggest that without a non-compete clause in the LLC operating agreement, an employee or a manager may be permitted to compete with the business of the LLC.

  1. Books and Records Audit

This legal document is also expected to stipulate who is allowed to check the LLC’s books and records, such as financial documents and board meeting minutes.

  1. Arbitration/Forum Selection

In every human event, there are bound to be disagreements; therefore, what laws direct disagreements between employees? Where will the lawsuit start? Will disputes be settled via arbitration?

  1. Fiduciary duties

The manager or managing member has a fiduciary duty to the company and other members. Aside from that, the LLC operating agreement cannot “eliminate the implied contractual covenant of good faith and fair dealing.”

  1. Tax Issues

You need to understand if contributing to the LLC will trigger income or estate taxes for the sole member in the state where the LLC does business. You also need to note if the passive loss will apply to an investment in the LLC. Aside from these issues meant to be addressed in the operating agreement, it should also state who will file taxes and when.

  1. Dissolution

Every LLC operating agreement is expected to indicate the exact situations that may lead to the dissolution of the company. The operating agreement can even go further to note whether members can request an involuntary dissolution from the court.

Conclusion

Creating a single-member LLC operating agreement is a very important stage of the process of opening a new limited liability company. It ensures that you can accurately define company processes, procedures, and legal recourses that can be taken. Note that creating a single-member LLC operating agreement doesn’t have to be challenging, just ensure to leverage the information noted above.