How to Address Dispute Resolution in an Operating Agreement for a Multi-Member LLC
A limited liability company (LLC) is a business entity that combines some of the advantages partnerships and traditional corporations. While not a requirement under Florida law, multi-member LLCs should always have a properly drafted operating agreement in place. Further, that agreement should include provisions for addressing dispute resolution. Within this article, our Palm Beach County business litigation lawyer provides some general guidance for how to address dispute resolution in an operating agreement for a multi-member LLC.
Know Your Terms: LLCs in Florida
LLCs are one of the most popular types of business entities in Florida. An LLC may be owned and operated by a single party or, alternatively, it may have multiple owners. An operating agreement is very valuable—but not legally required—if there are multiple owners. Here are key points to know:
- Limited Liability Company (LLC): An LLC is a business structure allowed by state statute. In Florida, LLCs provide flexibility and protection to their owners. The structure limits the personal liability of the owners, while still allowing for pass-through taxation.
- Multi-Member LLC: A multi-member LLC in Florida is composed of two or more members who share ownership of the business. It is a type of LLC that is treated as a partnership by default for tax purposes. However, the owner could elect to be taxed as a corporation. Notably, the members each own specified percentages of the business.
- Operating Agreement: An operating agreement is a critical document for any Florida LLC—especially so for a multi-member LLC. The agreement outlines the management structure, operational procedures, and other rights/responsibilities of the owners.
Addressing Dispute Resolution Within Your Operating Agreement
An internal dispute within a multi-member LLC can potentially cause serious harm to the business. For this reason, it is highly recommended that an operating agreement for a multi-member LLC be professionally drafted and that it contains pre-specified provisions for dispute resolution. The reality is that disagreements between business partners can happen. You do not want these disagreements to turn into full blown legal disputes.
Incorporating a clear dispute resolution mechanism in the operating agreement of a multi-member can make a big difference. Most often, this portion of the operating agreement will detail the steps to be taken when conflicts arise. In many cases, an operating agreement for a multi-member LLC will call for mediation or arbitration to resolve disputes. For most companies in Florida, it is beneficial to include provisions for handling disputes internally through a designated mediator among the members before moving to external arbitration.
Consult With Our Palm Beach County Business Law Attorney Today
At Pike & Lustig, LLP, our Florida business lawyers have the skills and experience that owners of LLCs can trust when it matters most. If you have any questions or concerns about disputes over multi-member LLCs, please do not hesitate to contact us today. From our West Palm Beach office, we provide business litigation representation throughout Palm Beach County.
