Part II – New Florida Revised Limited Liability Company Act to Take Effect
New Florida Revised Limited Liability Company Act to Take Effect
Part II – Members and Managers in your LLC.
Governor Rick Scott signed the Florida Revised Limited Liability Act (the “New LLC Act”) on June 14, 2013. Effective January 1, 2014, the New LLC Act governs LLCs in Florida and applies to all LLCs formed in the State of Florida on or after January 1, 2014. This year will be a transition year in which LLCs that were formed prior to January 1, 2014 may continue to operate under the already existing Florida Limited Liability Company Act. This means that every LLC in Florida will be affected by the New Year.
This is the second part of a series of articles that will address the changes made by the New LLC Act. This part two will discuss the rights and default rules governing members of a LLC and management of the organization. As mentioned in part one of this series, the features of the revised act discussed below are “default” provisions, all of which can be overridden or supplemented by the terms of the operating agreement of the LLC, with the exception of certain non-waivable items.
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 of that manager being a member of the LLC. If you have formed a Florida LLC recently or operate a Florida LLC previously formed you should be considering some of the following:
How are new managers of your Manager-managed LLC selected and how are current managers removed from their duties?
What are the default voting rights of members and managers?
What rights do members and managers have in dealing with reimbursement, indemnification, advancement, and insurance?
- How can I be proactive to ensure that my LLC is organized in a manner in which I have selected and understand?
Selection and Terms of Managers in a Manager-managed LLC
As in existing law, the New LLC Act provides that managers may be chosen by the consent of the member or members holding more than 50 percent of the then-current percentage or other interest in the profits of the LLC. A manager continues to act until a successor is chosen; the manager resigns, is removed, dies; or, if the manager is an entity, until it terminates. A manager may be removed at any time without notice or cause by consent of the members holding more than 50 percent of the then-current percentage or other interest in the profits of the LLC. A manager remains liable for any debt, obligation, or other liability to the LLC or members that the manager incurred while a manager. The dissociation of a member who is also a manager triggers the member’s automatic removal as a manager. These specific rules and protections governing member-managers may not have been provided for in operating agreements organized before the new legislation.
Voting Rights of Members and Managers
MEMBER-MANAGED LLC. Each member has the right to vote on a company’s activities with their votes being proportionate to that member’s then-current percentage of interest in the LLC. The New LLC Act requires that the vote or consent of a majority-in-interest (Majority of all member votes, not just votes present for a quorum) is required to undertake an act, whether within or outside the ordinary course of the company’s activities or affairs. Additionally, the articles and operating agreement may be amended only with a unanimous vote or consent of the members, which is a change from existing law. The admission of a new member, expulsion of an existing member, and dissolution of the LLC, also require unanimous vote or consent.
MANAGER-MANAGED LLC. Each manager has equal rights in the management and conduct of the company’s ordinary course of activities and affairs. A majority vote will usually suffice, but if action is taken without a meeting, a unanimous consent in a record is required. An act not in the ordinary course of the company’s activities and affairs requires the vote or consent of a majority of the managers, as well as a majority in interest of the members. The New LLC Act also contains separate voting provisions relating to mergers, conversions, and interest exchanges, as well as the procedures for submitting the transaction to members for approval
Reimbursement, Indemnification, Advancements and Insurance
Under the New LLC Act an LLC “may” provide for the reimbursement, indemnification, advancement of defense expenses, and insurance for members and managers. This is a carry-over of existing Florida law which imposes these obligations on the LLC by default. So if not specifically address in an LLC’s articles of incorporation then default Florida rules may apply.
For indemnification, rights are not available for transactions in which the member or manager failed to comply with fiduciary duties, if it violates the law, for transactions in which the person received an improper benefit, or for liabilities in connection with improper distributions. The New LLC Act addresses a list of wrongful conduct so as to preclude indemnification for any breach of statutory standards of conduct or the knowing violation of any law (not just criminal law), which is a change from existing law. The prohibition of indemnification for such wrongful conduct cannot be changed by the operating agreement (non-waivable), nor can the operating agreement limit a person’s liability to the LLC if his or her wrongful conduct causes damages.
An LLC may provide for the advancement of reasonable expenses if the person agrees to repay the advancement if it is subsequently determined that the person is not entitled to indemnification.
An LLC may purchase and maintain insurance on behalf of a member or manager against liability incurred in their capacities, or arising from their status, even for wrongful conduct of the kind described above for which indemnification would not otherwise be permitted. This is not part of existing law and is new to the New LLC Act.
What can I do now?
Now is the perfect time to address how the New Florida LLC act can affect your LLC’s operating agreement. Here at Kira Doyle Law we represent professional individuals and assist with the formation and modification of Florida LLCs. If you are a member or a manager of an existing Florida LLC, contact Kira Doyle to set up an appointment to discuss the implications of the New Florida LLC Act on you and your organization. If you are contemplating forming a Florida LLC , it would be wise to discuss the implications of the New Florida LLC Act when drafting the governing documents.