Puerto Rico LLC Operating Agreement

Why should a Puerto Rico LLC have an operating agreement?

A Puerto Rico LLC should have an operating agreement because a company cannot act for itself. In order to operate, LLCs require real humans (and other entities) to carry out company operations.

Puerto Rico doesn’t legally require LLCs to enter into an operating agreement. But even though it’s not required, adopting an operating agreement is in your company’s best interest.

1. Your operating agreement proves you own your LLC.

In Puerto Rico, you can choose to protect your privacy by not listing members’ names on the Certificate of Formation. The only problem is that when you need to prove you own your business, like to open a business bank account or convince someone to invest in your LLC, you won’t be able to prove ownership with the Certificate of Formation alone. That’s when it helps to have an operating agreement, which lists information for all of your members.

2. An operating agreement can help reinforce your limited liability status.

In order to maintain limited liability, an LLC must demonstrate that it is legally separate from its members. One action that helps you do this is adhering to a written operating agreement that documents your LLC’s rules and structure. If your LLC is ever sued, an operating agreement could be the pivotal weapon in your defense.

3. An operating agreement can help prevent misunderstandings.

Every once in a while, your LLC members may disagree on an important issue. When this happens it helps to consult your operating agreement, which plans for a range of major situations.

4. An operating agreement can override Puerto Rico’s default laws.

If you don’t have an operating agreement, your LLC will be governed by Puerto Rico’s default LLC statutes. These statutes might be different from the rules you want for your LLC. With a customized operating agreement, you can create rules that make sense for your LLC structure.

Puerto Rico Case Law

We asked our lawyers for an example of how an operating agreement can make or break your LLC. Here’s what they said.*

“Consider the case of Begley v Fullana-Morales, where the LLC did have an operating agreement, however the disputing members seemingly failed to actually recognize the dispute resolution process spelled out in the operating agreement. As a result, when one member attempted to seek judicial intervention into the LLC internal affairs, the court easily sided with the other members who sought dismissal of the legal action. The members seeking dismissal pointed out that the operating agreement of the LLC explicitly spelled out a process for resolving disputes which included mediation and arbitration prior to bringing an action to the courts. Looking to the clear and unambiguous language of the operating agreement, the courts promptly dismissed the action and ordered the members to resolve their disputes pursuant to the process(es) outlined in their LLC operating agreement.

“Had the members taken the time to plan ahead, discuss potential pain points, and distill their collective understanding into a written operating agreement, and periodically reviewed that operating agreement for continued clarity and understanding, then this dispute could have been resolved internally (if not avoided completely), and valuable resources could have been preserved for other more fulfilling commercial purposes.”