Holding Company Operating Agreement
Every business entity needs an "instruction manual" that serves as a guide to how the business will be owned and operated. For a limited liability company (LLC), this instruction manual is called an “Operating Agreement.”
An operating agreement is a document written on behalf of the members of an LLC that establishes:
Ownership of the LLC;
Rules governing the LLC; and
Duties and responsibilities of the LLC's members.
Operating agreements are only mandatory for LLCs in a few states and usually only for multi-member LLCs. If an LLC does not have an operating agreement, state law controls its operations and rules. Regardless, if an operating agreement is required, it doesn’t have to be filed with the Secretary of State.
Why Operating Agreements Are Important
While Florida doesn't require LLCs to have operating agreements, there are still many reasons for your Florida LLC to have one. Operating agreements provide single-member LLCs with credibility while strengthening the corporate veil that prevents creditors from reaching the members’ personal assets. For multi-member LLCs, in addition to providing asset protection and credibility, operating agreements can prevent misunderstandings among members because it provides clear rules and responsibilities and specifies how internal disputes are to be resolved.
Does a Holding Company Need a Special Type of Operating Agreement?
Holding companies do not require any special type of operating agreement. However, the operating agreement should include and address terms and issues that are specific to the industry in which the holding company is being used. For example, a real estate holding company’s operating agreement may specify that the holding company’s funds can only be used to acquire real estate (as opposed to long-haul trucks) or that the managing member must also fulfill the role of property manager.
What Needs to Be Included in an Operating Agreement?
There are essentially 6 important sections or articles that your holding company operating agreement should include:
Example 1: Basic Information
Name of the LLC;
When and where the Articles of Organization to form the LLC was filed;
References if the agreement was previously amended or restated;
Duration of the LLC;
Principal office address;
LLC’s business purpose; and
Name and address of the LLC's registered agent.
Example 2: Management & Voting
Whether the LLC will be member-managed or manager-managed.
An LLC can be managed by its members or by appointed managers. If the LLC is manager-managed, the authority the manager has and how he or she can be removed will also be detailed in this article. A holding company’s operating agreement should also provide that the company’s management will apply to all subsidiaries.
How voting in the LLC will work.
Company voting policy outlines how the members of the LLC will vote on issues that require a group decision. You will need to specify if voting rights will be decided by the number of membership units a member owns or “per capita,” i.e. one vote per member. You will also need to specify if votes need to be unanimous or by majority.
Which issues will be voted on or which ones will be decided by the manager.
Amendments to the operating agreement;
Merger or dissolution;
New members; and
The purchase or sale of business assets.
Example 3: Members Interest And Capital Contributions
Named LLC members;
Each member’s particular ownership interest;
Which members made capital contributions to start the LLC; and
How additional funding can be raised by the members, e.g.,
By issuing membership units to existing members in exchange for capital contributions; and/or
By issuing additional units to new members
Example 4: Distributions
Outlines how profits and losses will be shared among its members;
Profits and losses can include money, physical property, or other business assets
May be allocated to members according to percentage of ownership
Should specify that allocations and distributions will still need to account for outstanding debt and taxes owed by the LLC
Example 5: Membership Changes
How new members can be added and existing members are removed;
If and when members can transfer their ownership back to the company; and
What happens when a member dies or withdraws from the company.
Example 6: Dissolution (Winding Up)
Specifies the circumstances upon which the company may (or must) be dissolved;
Process for doing so, also referred to as "winding-up" the affairs of the business;
If the company owns assets, how those assets should be distributed after the company has been wound-up.
An Operating Agreement is a Living Document
An operating agreement should evolve as your business grows. Rather than being static, an operating agreement is often described as a “living document” because it can be amended to reflect new ownership structures, tax elections, or strategic priorities.
By updating your operating agreement, your holding company can make pivotal changes without being locked into an inflexible framework. This flexibility ensures that governance, member rights, and capital structures remain aligned with the company’s growth trajectory and industry demands.
A qualified business law attorney can assist you with drafting your operating agreement or with fine-tuning your existing operating agreement if it has become too complex or complicated. Call us today at 401‑272‑8300 or complete our online form to arrange a consultation with an experienced Tampa business law attorney.
Frequently Asked Questions about Holding Company Operating Agreement Examples
Does a holding company need an operating agreement?
A holding company needs an operating agreement to show who owns how much and to determine the rights and responsibilities of members and managers. Each subsidiary should have an agreement too.
Can a holding company be an operating company?
A holding company and operating company are not the same. The first is meant to hold assets and investments, while the second operates and manages investments, assets and employees. Some companies that hold all subsidiaries operate, but a pure holding company has no operations of its own.
What are the operations of a holding company?
The operations of a holding company should be none. This is because operations are inherently risky and a holding company owns valuable assets that should be kept separate from liabilities.
What is the difference between a holding company and operating company?
A holding company is used to hold assets, but it should not manage them, have employees, or engage in operations because those actions bring liabilities that can threaten the assets.
