To form a business entity, you must file certain documents and appoint a registered agent with the Secretary of State. In addition to filing annual reports online, you can usually find legal forms on your Secretary of State website. But beware: the forms they offer are only sufficient to comply with statutes. The forms are not sufficient to protect your company.
Unfortunately, the list of forms provided by the Florida Secretary of State is incomplete, and some of the forms that made it to the list are themselves incomplete.
One example of a business form you will find, the Articles of Organization, is incomplete and insufficient to protect your company. The State of Florida requires that every Limited Liability Company (LLC) doing business in its state file Articles of Organization, which at a minimum is a formal statement of the company’s name, date of filing the articles, and any amendments to the articles. While the form fulfills the minimum statutory requirement for a Single Member LLC, it may be entirely inadequate for a Multi-Member LLC. It lacks sufficient information to properly publicize the owners’ and managers’ agreements for multi-member LLCs.
For example, if you are the owner of an LLC, and you intend to require a majority vote on big decisions, like entering a $500,000 purchase, the Articles of Organization provided by the Florida Secretary of State is insufficient to establish that voting requirement. Thus, relying on the simple forms can lead to disastrous results: a single manager could have the power to bind the company to a very expensive contract to which no other manager or owner even agreed.
One of the important documents that are not published on the Florida Secretary of State website is an Operating Agreement. An Operating Agreement is vital to the future success of a Limited Liability Company (LLC). It is an agreement between the Members of an LCC which, among other things, governs the structure of the business, the activities and affairs of the business, and, most important, the rights and duties of the managers.
An Operating Agreement is necessary for the owner of an LLC to limit the power of her managers. Without such an agreement, an owner may inadvertently give a managing member more power than expected. For example, suppose a manager of an LLC makes a $500,000 purchase under the company’s name. The owner neither requested nor approved such a purchase. Unfortunately, without an operating agreement that specifically caps the manager’s power to make and sign company purchase agreements, the company will be liable to pay the debt incurred by the employee’s purchase. There will also be no cause of action against the employee for such a purchase. Drafting an effective Operating Agreement to keep in your records is thus vital to the future success of your company.