Florida Corporate and Business Law Update: The Florida Revised Limited Liability Company Act, Chapter 605 of the Florida Statutes, Modernizing Florida’s Limited Liability Company Laws
The State of Florida has taken an important step in modernizing its business climate by revamping its limited liability company (“LLC”) laws and thus keeping Florida competitive with other influential commercial jurisdictions in the U.S. Specifically, the Florida Legislature recently passed into law the Florida Revised Limited Liability Company Act (the “Revised LLC Act”), which is codified in the new Chapter 605 of the Florida Statutes. A “substitute” version of the Revised LLC Act is available here. The revisions impact not only existing businesses in Florida but also all third parties who transact business with LLCs in Florida.
The Revised LLC Act is largely based on the 2011 version of the Revised Uniform Limited Liability Company Act (“RULLCA”), available here, but also retains certain provisions from the existing Florida LLC Act, which is codified in Chapter 608 of the Florida Statutes and is available here. The revised act also borrows from the American Bar Association’s Revised Prototype LLC Act, the Revised Model Business Corporation Act, Florida’s partnership acts, and the LLC statutes of Delaware and other leading commercial states.
Among its key revisions, the Revised LLC Act does the following:
- Like its predecessor, the Revised LLC Act is a default statute, meaning that it sets forth certain provisions that cannot be waived and it also is used to fill in gaps when parties have failed to consider certain issues in their articles of incorporation and/or operating agreements. The revised act expands the list of non-waivable provisions and contains various gap-fillers, such as for fiduciary duties, special litigation committees, derivative actions, indemnification for wrongful or intentional misconduct, and an LLC’s capacity to sue and be sued. (However, because an LLC may override certain default gap-fillers by contract, the operating agreement continues to be a critical focal point for the rights and responsibilities by and between the LLC’s members and managers).
- The Revised LLC Act modifies various provisions governing an LLC’s management structure, including, among other such modifications, by eliminating the concept of a “managing-member” and thus leaving LLCs to exist as either member-managed or manager-managed; and by altering certain voting rules for both members and managers, such as by requiring that a majority-in-interest of the members approve any action outside of the LLC’s ordinary course of business.
- The Revised LLC Act recognizes the agency power of an LLC’s managers and members, giving both of them “apparent” authority to bind the LLC. In the absence of a contrary provision in the articles of incorporation or operating agreement, all Florida LLCs are now considered to be member-managed, and all members have authority to bind the LLC as agents of the LLC. Thus, because information regarding whether an LLC is member-managed or manager-managed may not be contained in public records, third parties under the revised act would be well-advised to ask for copies of an LLC’s operating agreement and/or written management designation to determine the authority of the LLC’s managers and members as agents of the LLC. Alternatively, the revised act now allows for the filing of a statement of authority, which, as with similar statements authorized under Florida’s partnership statutes, allows an LLC to designate any member(s), manager(s) or other person(s) who can bind the LLC. An LLC also can file a statement of denial to revoke (or deny) a prior grant of authority. The revised act further imposes additional reporting requirements regarding information that is submitted to the Department of Corporations.
- The Revised LLC Act modifies the provisions regarding the winding up of an LLC’s affairs, dissociation of members, and dissolution of LLCs, including by introducing the concept of “wrongful dissociation,” and by giving an LLC the right to damages against a member who wrongfully dissociates from the LLC (and, for example, wrongfully competes against the LLC). Similarly, the revised act clarifies the grounds for judicial dissolution and the appointment of receivers and custodians, including a “deadlock sale” provision addressing deadlock between managers or members. The revised act also eliminates certain prior provisions (under the existing act) regarding the circumstances in which an LLC’s creditor can bring an action against the LLC for judicial dissolution.
- The Revised LLC Act modifies the provisions regarding service of process on LLCs, and thus clarifies how to serve process on a Florida LLC and/or a foreign LLC that is authorized to transact business in this state.
- The Revised LLC Act clarifies the provisions regarding appraisal rights and organic transactions, such as mergers, conflict-of-interest exchanges, conversions and domestications, including interest exchanges and in-bound domestications by non-U.S. entities. (The revised act does not currently adopt “Series LLCs,” although the issue continues to be considered and, if necessary, could be the subject of a future special task force.)
Once it is signed into law by the Governor, the Revised LLC Act will become effective on January 1, 2014, and will apply to all new limited liability companies (or LLCs) formed or registered to do business in the State of Florida on or after that date, or to all existing LLCs that registered prior to January 1, 2014 and elect to come under the revised act.
In addition, as of January 1, 2015, the revised act (in Chapter 605 of the Florida Statutes) will repeal the existing Florida LLC Act (in Chapter 608) for all LLCs formed or registered to do business in Florida prior to January 1, 2014, and thus will become the mandatory default statute for all LLCs (regardless of registration date) as of January 1, 2015. The one-year gap provides existing LLCs a limited window within which to assess their current governance procedures and corporate documentation before being subject to the new provisions of the Revised LLC Act.
Although the statutory revisions are designed to, and should, make Florida a more desirable location for business owners, the Revised LLC Act contains significant changes from the existing act and thus implicates many material issues for anyone who conducts business in this state and/or deals with Florida or foreign LLCs here, including lenders and other parties who contract with Florida LLCs.
The key revisions identified above provide a non-exhaustive glimpse into the subject changes. Florida business owners and third parties with commercial operations in this state should consult with a legal advisor to determine what changes, if any, are appropriate given the Florida Revised LLC Act and to avoid unintended consequences of transacting business in this state.
The attorneys at Fuerst Ittleman David & Joseph have extensive experience in all areas of commercial transactions, including incorporation, management, governance and compliance issues. Please contact us by email at email@example.com or telephone at 305.350.5690 with any questions.