Estate and Succession Planning
Dean Mead’s Estate and Succession Planning Department is one of the largest and most respected groups of estate planning attorneys in Florida. We are frequently…
What You Should Know about the New Limited Liability Company Act
The Florida legislature passed Senate Bill 1300 in the 2013 session, which created a Revised Limited Liability Company Act in Florida as a new Chapter 605 of the Florida Statutes (the current LLC Act is in Chapter 608). All LLCs formed in 2014 are subject to the new LLC Act upon formation. Until January 1, 2015, LLCs in existence prior to January 1, 2014 may continue to operate under Chapter 608. As of January 1, 2015, however, all LLCs in Florida will be subject to Chapter 605, and Chapter 608 will be repealed.
The new LLC Act contains a number of noteworthy changes, including the following:
- The new LLC Act eliminates the concept of a “managing member,” and makes a number of other definitional changes. Fla. Stat. § 605.0407. This will require changes to the Operating Agreements of existing LLCs that use the concept of a “managing member,” which is a defined term under existing Chapter 608, and other changes to definitions in existing Operating Agreements to conform to the new Chapter 605.
- The new LLC Act contains a statutory non-compete as part of the fiduciary duty of loyalty that will apply for managers of a manager-managed LLC and for members of a member-managed LLC (though the terms of such non-compete are far from clear). Fla. Stat. § 605.04091(2)(c). A member of a member-managed LLC can potentially be relieved of the duty of loyalty (including the non-compete) if such member is expressly relieved of the specific duty and such duty is expressly imposed on one or more other members. Additionally, if not manifestly unreasonable, the Operating Agreement may alter or eliminate aspects of the duty of loyalty (including the non-compete) and may specify types or categories of activities that do not violate the duty of loyalty. Consequently, whether the members want a non-compete or not, the Operating Agreement should expressly set this out in order to avoid any uncertainties regarding the statutory non-compete or eliminate a non-compete altogether (if not manifestly unreasonable).
- Statements of authority can be filed with the State of Florida setting forth what authority an individual has with respect to the LLC – such as officers, managers, etc., as well as specifying limitations upon the authority of individuals to make certain decisions. Fla. Stat. § 605.0302. The statement is effective for five years unless revoked earlier. If an officer is removed, the certificate of authority should be revoked or amended, or alternatively if five years passes, a new certificate should be filed. We believe most banks and other third parties dealing with LLCs will require Statements of Authority to be filed in connection with any transaction with such bank or third party.
- A person who becomes a member of an LLC is bound by and subject to the Operating Agreement even if the new member does not sign it. Fla. Stat. § 605.0106(2). This is especially notable because an Operating Agreement is not subject to the statute of frauds (Fla. Stat. § 605.0106(6)), and by definition an Operating Agreement may be oral (Fla. Stat. § 605.0102(45)). So when becoming a member of an LLC under the new LLC Act, it is important that the new member review the Operating Agreement and get signed statements regarding any oral agreements in place. This could be a significant trap for the unwary.
- An LLC creditor can enforce any agreement among members to make a capital contribution to the LLC. Fla. Stat. § 605.0403(4). This provision does not appear to be waivable, and as such, any agreement requiring additional capital contributions should be reviewed very carefully.
- The new LLC Act expands the list of provisions which cannot be waived or altered in the Operating Agreement. Fla. Stat. § 605.0105(3). Operating Agreements should be reviewed to make sure they comply with these new limitations.
- Appraisal rights, which enable a member who dissents from a proposed merger, conversion, sale of substantially all of the LLC’s assets, etc., to demand to be paid the fair value of his membership interest, are expanded in scope, but can be waived. Fla. Stat. § 605.1006.
Because the new LLC Act contains changes that will be applicable to any existing LLCs as of 2015, we strongly urge the members of an LLC to contact legal counsel to review their documents and recommend any changes that must or should be made based on the new LLC Act. Please let us know if we can assist you in this regard.
New LLC Act Law Changes: What you need to know to prepare for 2015
Dean Mead attorneys Steve Looney and Jane Callahan presented some of the key changes in Florida’s new limited liability act on September 24, 2014, including:
- Changes to the non-waivable default rules
- Modifications to management options
- Introduction of a new ability to file statements of authority with the State
Business owners who attended the seminar left with a better understanding of the changes they will need to address in amendments to their operating agreements before the new Act becomes effective for all LLCs in 2015. In addition, they addressed the new Florida law authorizing “benefit corporations”, also known as “B Corporations”. B Corporations should be attractive to “social entrepreneurs” who are looking for their company to benefit both its shareholders and specific social causes.
