Chapter 605 and the Revised Florida Limited Liability Company Act
Effective January 1, 2014, the Revised Florida Limited Liability Company Act (the Act) became the applicable law with respect to the operation of limited liability companies in this state. On or about January 1, 2015, the former Florida Limited Liability Company Act (the Repealed Act) is expected to be repealed. When repealed, all limited liability companies will be subject to the Act. Up until that time, however, companies organized before the January 1, 2014, effective date of the Act shall be governed under the Repealed Act, except for filing requirements which are controlled by the Act as of its effective date.
Generally speaking, a Florida limited liability company is a statute-created business organization providing its members with limited liability. Unlike a corporation, which also offers limited liability to its shareholders, a limited liability company does not mandate the same corporate administrative requirements which many business owners find cumbersome. Unlike a partnership, a limited liability company may be owned by a single member, adding to its flexibility. With that in mind, one of the most important documents of a limited liability company is the agreement by which the members (and in some cases specified managers) govern the company. Noted here are a few items that the members of a Florida limited liability company should consider with respect to its operating agreement under the new Act.
The Implied Florida LLC Operating Agreement
The Act provides in §605.0102(45) that the term “operating agreement” includes not only written or oral agreements but is expanded to include implied arrangements, even if not referred to as an “operating agreement.” The result of an “implied agreement” is that, by its very definition, it lacks the precision which can cause disagreement among members and managers. To minimize this risk, an operating agreement should contain an integration provision limiting any modification of the agreement.
Restrictions on Limited Liability Company Operating Agreement
The operating agreement is a contractual arrangement between the members, managers, company, and other agents of the company, and unless provided otherwise in the Florida Limited Liability Company Act, it is governed under the general principles of contract law. However, certain provisions of the Act cannot be modified by the operating agreement. For example, restrictions that relate to the duties of loyalty and care, and certain improper conduct may not be superseded by the terms of the operating agreement. Further, there are statutory restrictions on operating agreements such as limiting merger and consolidation rights of members. The Act provides a restriction on provisions of an LLC operating agreement altering a member’s power to dissociate from the company. Specifically, an operating agreement may not “vary the power of a person to dissociate” under the Act. The Act provides that a member who wishes to dissociate may provide notice to the company of their intention to dissociate and provide in such notice the time of dissociation, e.g., specify an effective date. The agreement may deviate from the foregoing dissociation requirements only to require that such notice must be in a “record.” The Act broadly defines the term “record,” and to properly govern notices to the company under the Act, an agreement should specify what mediums of communication shall be effective as notice.
Management of the LLC Company
While there are still two permitted management structures under the Act, manager-managed and member-managed, the Act now eliminates the concept of a “managing member” found in the Repealed Act. The effect being that an operating agreement of a member-managed company which used or relied on the “managing member” term as provided in the Repealed Act, will reference a term which is no longer defined and without definitional clarity. In many instances, a manager-managed company is more advantageous with respect to the company’s dealings with third parties. Generally, manager-managed structures prevent a member from intentionally or unintentionally binding the company. The new Act, however, provides a new concept of “statements of authority” which are filed with the Florida Department of State, Division of Corporations. This statement provides record notice to third parties as to any agent authority with respect to the company, and may specifically limit or expand such authority. Such statements of authority are valid until the earlier of its amendment, cancellation, or expiration five years from its effective date.
Because each LLC operating agreement in Florida is unique, determining whether an operating agreement should be amended or restated requires a case-by-case analysis. The Act provides, as a whole, a more comprehensive legal framework for governing the conduct of a Florida LLC company. With the exception of current record filings with the State, companies which were created before the effective date of the Act have until 2015 before the Act is applicable to them. As the Act will in all instances supersede the Repealed Act, the members, managers, and agents of earlier-created limited liability companies should discuss and review their Florida LLC operating agreement, and existing documents, with a Florida counsel to ensure their legal effect as the Act becomes applicable to them.