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New Florida Revised Limited Liability Company Act to Take Effect

revised-llc-act

On June 14, 2013, Governor Rick Scott signed the Florida Revised Limited Liability Act (the “New LLC Act”) into law. Effective January 1, 2014, the New LLC Act governs Limited Liability Companies (LLCs) in Florida and applies to all LLCs formed in the State of Florida on or after January 1, 2014. 2014 is a transition year in which LLCs that were formed prior to January 1, 2014, continue to operate under the already existing Florida Limited Liability Company Act, under Chapter 608 of the Florida Statutes (the “Existing LLC Act”), until January 1, 2015. The New LLC Act creates entirely new Florida Chapter 605, and repeals existing Florida Chapter 608 effective January 1, 2015. Therefore, beginning January 1, 2015, the New LLC Act applies to every LLC in Florida. This means that every LLC formed or doing business in Florida will be affected by the New Year.

If you have created a Florida LLC recently or operate a Florida LLC previously formed you should be considering some of the following:

  • Do you currently operate a Florida Limited Liability Company (“LLC”) as a member-managed entity?

  • Does your LLC operating agreement contain provisions addressing the withdrawal of a member from the LLC?

  • Does your current LLC operating agreement address the effects of the New LLC Act?

Management Structure

For most LLCs created before the New LLC Act, it was common to designate one or more “Managing Member(s)” as a member who also had the exclusive authority to act on behalf of the LLC. In this type of management arrangement other LLC members would have no managerial authority.

The New LLC Act changes this form of management and does not even recognize the “Managing Member” concept. Instead, the New LLC Act will recognize only “Member Management”, where each member of the LLC will have the management and decision-making authority, or “Manager Management”, where the decision making authority is delegated to one or more individuals, without the requirement that a manager be a member of the LLC. Each can pose specific risks. For example, a “Member Management” structure gives every member, including minority members, management authority leading to the risk that a minority member can bind the LLC. Looking ahead, it is highly recommended that any LLC with a “Managing Member” be strategically changed to one of the management structures recognized by the New LLC Act. Although it is unlikely that the actual management structure of your LLC will change, it remains crucial that the LLC documentation be revised to reflect the legal changes.

Dissociation of a Member

The New LLC Act modifies certain provisions that involve dissociation of members of LLCs. It provides that a member may dissociate at any time by withdrawing through “express will”, regardless of whether the LLC operating agreement allows for this action. The Existing LLC Act states that a member could not dissociate at all prior to dissolution or winding up the LLC, unless authorized in the LLC’s articles of organization or operating agreement.

Additionally, the New LLC Act announces the concept of a “wrongful dissociation” in violation of the operating agreement. This means that if a member dissociates from an LLC prior to it winding up, the member’s right to participate as a member in the management and conduct of the LLC’s activities and affairs will terminate. Further, if the LLC is member-managed, the member’s fiduciary duties of loyalty and care to the LLC and its other members will terminate. However, the wrongfully dissociated member can retain his or her right to receive distributions from the LLC. But, to stay level, a member who wrongfully dissociates is liable to the LLC and to the other members for damages caused by the dissociation, and the LLC may have the right to damages against a member who wrongfully dissociates.

How Else Does the New Florida Act Affect MY LLC Operating Agreement?

The New Florida LLC Act is a “default statute” just like the Existing LLC Act. This means that it provides the foundation of rules governing LLCs created in Florida, but a majority of the statutory rules can be superseded by your distinctive LLC operating agreement. Therefore, the operating agreement continues to be of critical importance in establishing a management and governance structure of the LLC, as well as the rights and responsibilities of the members and managers. Although an LLC’s operating agreement can supersede certain statutory provisions of both the New Florida LLC Act as well as the Existing LLC Act, changes enacted by the New LLC Act could materially affect the LLC’s operating agreement and how certain provisions will be interpreted and enforced. It is exceedingly important that your operating agreement be comprehensive and cover all matters in which a provision of the New Florida LLC Act could apply. If it does not, the LLC could be subject to some of the “default provisions,” which could alter the intentions originally contemplated by the LLC members.

What should I do now?

Now is the perfect time to address how the New Florida LLC Act can affect your LLC’s operating agreement. At Kira Doyle Law, we represent individuals and business owners, and assist with the formation and modification of Florida LLCs. If you are a member, especially a managing member, or a manager of an existing Florida LLC, contact Kira Doyle Law to set up an appointment to discuss the effects of the New Florida LLC Act on your LLC. If you are contemplating forming a new Florida LLC, it would be judicious to discuss the implications of the New Florida LLC Act with an experienced attorney before drafting the LLC’s governing documents.