The Florida Revised LLC Act was enacted in 2013 and took effect Jan. 1, 2014 for new Florida LLCs and Jan. 1, 2015 for all Florida LLCs. However, in 2015, the legislature further amended the act with clean-up changes and glitch fixes as well as some important substantive adjustments. One of those substantive adjustments may cause members and managers of LLCs to be subject to common law fiduciary duties in addition to the express statutory fiduciary duties previously found in the act, unless they take affirmative steps to amend their operating agreement.
The legislature was concerned that judges had inconsistently interpreted the law as to whether common law principles relating to the fiduciary duties of loyalty and due care existed alongside the express statutory fiduciary duties set forth in Chapter 605. In order to address this confusion, the legislature amended the law to expressly state that common law principles relating to the fiduciary duties of loyalty and due care continue to exist alongside the express statutory duties.
Prior to the 2015 amendments, Section 605.04091 provided that members and managers of an LLC owe the fiduciary duties of loyalty and due care to the LLC itself, as well as to members of the LLC. However, those duties were limited by the statute to certain stated situations. Specifically, this statutory section provided that the fiduciary obligations that managers and members had to the LLC itself and to the members were strictly limited to the following:
- Duty of loyalty is limited to (1) accounting for profit, benefits, etc.; (2) not having adverse interests to the company; and (3) not competing against the company before dissolution.
- Duty of care is limited to refraining from engaging in grossly negligent or reckless conduct and willful or intentional misconduct or in a knowing violation of law.
- All duties under the LLC Act and operating agreement must be discharged consistent with the “obligation of good faith and fair dealing.”
The 2015 amendments made it clear that in addition to those specific situations, the managers and members were subject to common law principles relating to fiduciary duties. However, just as under prior law, the 2015 amendments allowed for those obligations to be somewhat limited by the LLC’s operating agreement.
Specifically, under prior law it was possible for operating agreements to waive certain fiduciary obligations. If the waiver of these duties was ever questioned, the courts were required to decide as a matter of law whether those waiver provisions were appropriate pursuant to a “manifestly unreasonable” standard. Respectively, courts must consider only those circumstances which existed when the waiver became a part of the operating agreement and may only invalidate the changes if the objective of the change is unreasonable or the change was an unreasonable means to achieve an objective. Under no circumstances could an operating agreement be changed to exonerate a person for conduct involving bad faith, willful or intentional misconduct or a knowing violation of law.
The 2015 amendments included a provision in Section 605.0111(2) allowing for all fiduciary duties to be restricted, expanded or eliminated except for those that are non-waivable under Section 605.0105.
Accordingly, this provision changes current law in that prior to the 2015 amendments, every LLC automatically got the benefit of the limited fiduciary duties unless those duties were expressly expanded by the operating agreement. After the 2015 amendments, unless there is a broad waiver of fiduciary duties to the extent permitted by law, at least the common law fiduciary duties of loyalty and due care will supplement the express statutory duties and other fiduciary duties may be implied as well.
Accordingly, it is important for all LLCs to ask their attorneys to examine their operating agreement to ensure that the issue of what fiduciary duty standard is applied to the managers and members of the LLC is addressed and reflects the understanding and intentions of all parties.