Sunday, February 8, 2015

Ten Things You Need to Know About the Florida Revised Limited Liability Company Act

With the January 1, 2014 effective date of the new Florida Revised Limited Liability Company Act, and with a “retroactive application” date of January 1, 2015 to all limited liability companies, both newly-formed limited liability companies and existing limited liability companies should take heed. The revised statute is now codified at Chapter 605, whereas the prior LLC statute was codified at Chapter 608. According to statistics maintained by the Florida Secretary of State, over 178,000 limited liability companies were formed in Florida in 2013 compared to only some 102,000 for-profit corporations. The popularity of the LLC as a business entity has been driven by the perception that the LLC form provides more flexibility in the operating and management structure of a business entity while still providing limited liability. Further, its default federal taxation as a partnership may provide preferential tax benefits as compared with a corporation. Here is a summary of some significant changes, but caution: the statute is complex and its application requires professional analysis.

1. The Revised Florida LLC Act expands the definition of an "Operating Agreement"

An “Operating Agreement” (analogous to an amalgam of By-Laws and a Shareholders’ Agreement in a corporation) may now be “oral, implied, in a record, or in any combination thereof.”

2. Elimination of "Managing Member"

The prior statutory term of “Managing Member” was confusing because it was unclear as to whether it applied to a member-managed LLC or a manager-managed LLC. Such designations in an existing LLC will be deemed “member-managed”. The term “manager” will now refer to a manager-managed LLC.

3.  The Operating Agreement May Relieve Members of Duties

The Operating Agreement may now expressly relieve members, or shift among the LLC members, certain duties previously non-delegable.

4.  The Operating Agreement Trumps the Articles of Organization

The revised statute expressly provides that any conflict between the Operating Agreement and the Articles of Organization is resolved in favor of the Operating Agreement with respect to internal disputes. However, third parties are entitled to rely on the Articles of Organization as filed unless otherwise notified.

5.  Admission of New Members Must Be Unanimous

If not otherwise provided in the Operating Agreement, new members may only be admitted by unanimous rather than majority vote.

6.  Right to Dissociate

An LLC member now has the right to withdraw or “dissociate” at any time for any reason. However, a member who wrongfully dissociates may be liable to the LLC for damages.

7.  An LLC May Have “Non-economic Members”

Any person or entity may now become a non-economic member of an LLC without any transferable interest
i.e., no right to any distributions, or any contribution obligations.

8. Service of Process Clarified

The revised statute sets forth an order of persons upon whom service of process, notice or demand will be effective.

9.  Appraisal Rights Expanded

The revised statute adds appraisal rights for interest exchanges and for sale of substantially all of the LLC’s assets.

10.  Limits on Indemnification

The revised statute expands the categories of activities for which members or managers may not receive indemnification to include defalcations in the management of the LLC and violations of statutory standards of conduct.