BY MICHAEL L. FEINSTEIN, ESQ. – On June 14, 2013, Florida adopted the Revised Limited Liability Act (“Florida’s LLC Act”), based on the Revised Uniform Limited Liability Company Act. Florida’s LLC Act went into effect on January 1, 2014 and is codified in Chapter 605 of the Florida Statutes. Florida’s LLC Act governs new LLCs formed after Jan.1, 2014. LLCs formed before Jan.1, 2014, may elect to be governed under the old LLC statute until Jan.1, 2015, however, after Jan.1, 2015, Florida’s LLC Act will apply to all Florida LLCs.
Florida’s LLC Act contains significant changes from the prior statute. Below are some highlights of the material changes:
1. Expansion of Nonwaivable Provisions §605.0105
Florida’s LLC Act expands the list of statutory rights and provisions that cannot be waived or altered in governing documents or other agreements between an LLC’s members. For example, an LLC may not attempt to unreasonable restrict the duties of an LLC to maintain certain records, or the right of members to access the LLC’s records. Also, an operating agreement cannot attempt to vary the requirements to wind up the LLC’s business, activities and affairs as set forth in Florida’s LLC Act. LLCs should consider amending their operating agreements and other affected agreements to eliminate or modify such provisions.
2. Statement of Authority/Statement of Denial §605.0302 and §605.0303
Florida’s LLC Act allows a statement of authority to be filed with the Department of State, which creates a safeguard for LLCs that want to limit the power of one or more members, managers or other person’s authority to bind the LLC. Each statement of authority is effective for five years from the date of its most recent amendment, unless terminated earlier. A statement of denial may also be filed to deny the grant of authority to a member or manager who had previously had been granted authority.
3. Elimination of the Term “Managing Member”
Florida’s LLC Act eliminates the use of the term “managing member,” leaving LLCs to exist as member-managed or manager-managed. Under the new law, existing LLCs that were managed by a managing member are deemed to be member-managed. Furthermore, absent an agreement, members are not necessarily entitled to compensation for services except for services related to the winding up of the LLC. It is important for LLCs to document whether they are “manager-managed” or “member-managed,” as this determines how management decisions must be approved, who has authority to approve them, and who has the power to represent and speak for the company. Existing LLCs and new LLCs should clarify this distinction in their operating agreements, and other agreements or governing documents, to avoid confusion or unintended consequences. An LLC that is currently governed by a “managing member” should consider revising necessary documents to conform with Florida’s LLC Act.
4. Dissociation §605.0216, §605.0601-605.0603
Florida’s LLC Act provides that a member may dissociate at any time, rightfully or wrongfully, by express will. This is a change from the prior act, as a member could not dissociate prior to dissolution or winding up, unless it was specifically authorized in the articles of organization or operating agreement.
Florida’s LLC Act also introduces the concept of a “wrongful dissociation,” which is a dissociation in violation of the operating agreement, through express will or otherwise, prior to winding up. An LLC may be entitled to damages against a member who wrongfully dissociates.
5. Service of Process §605.0117
Florida’s LLC Act provides clear guidance on how to serve process on a Florida LLC or a foreign limited liability company that is authorized to transact business in Florida. The new statute lists all the parties one may serve in order of priority.
6. Appraisal Rights §605.1006
Florida’s LLC Act modifies the appraisal rights in the prior act, which includes the addition of events that trigger appraisal rights, and provides procedural clarification to aspects of appraisal rights.
7. Inaccurate Records filed with the Department of State §605.0205
Florida’s LLC Act promulgates new rules for determining who is liable for inaccurate records filed with the Department of State. There is an obligation on members of member-managed LLCs and managers of manager-managed LLCs to maintain the accuracy of the information contained in the articles of organization and to correct any information that becomes inaccurate.
Florida’s LLC Act represents a substantial evolution in Florida law. This is the first major overhaul of the LLC Act in 14 years. The Florida LLC act was signed into law in June of 2013 and was intended to make Florida a more attractive place to organize and operate an LLC.
As a result of the new law, existing LLCs may want to update their operating agreements and articles of Organization. New LLCs formed after January 1, 2014 need to comply with the requirements of Florida’s LLC Act. The operating agreement remains the primary guiding factor with respect to the rights and responsibilities among the members and how the Florida LLC is to be operated, therefore, careful drafting of the operating agreement remains essential for any LLC.
Attorney Michael L. Feinstein is based in Fort Lauderdale and is located on the Internet at www.feinsteinlaw.net