Happy New Year: Pre- 2014 LLCs Are Now Governed by New LLC Act

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During the 2013 legislative session, the Florida legislature adopted a complete re-write of Florida’s limited liability company statute, which is codified in Chapter 605 of the Florida Statutes (New LLC Act). The New LLC Act became effective Jan. 1, 2014 for all Florida limited liability companies organized on or after that date and for all foreign limited liability companies that had previously qualified to transact business in Florida. However, the New LLC Act only became effective for previously existing LLCs Jan. 1, 2015. The one-year extension for existing LLCs was intended to give those LLCs time to get their house in order before they became subject to the provisions of the New LLC Act. Accordingly, members and managers of LLCs existing prior to Jan. 1, 2014, must now consider whether the changes brought about by the New LLC Act require that their management structure and/or operating agreement be modified.

Under the New LLC Act, LLCs are now permitted to have only two management structures. Specifically, LLCs must be either manager managed or member managed. The term managing member has been completely eliminated by the law. Accordingly, those LLCs that currently have a managing member may be deemed to be member managed thereby giving all members authority to act as an agent of the LLC. It is important to give consideration to the issue of who has the ability to act as an agent and bind the LLC. Ignoring this important change brought by the New LLC Act could cause your LLC to be liable for actions taken by members who were not intended to have such authority.

However, the New LLC Act allows LLCs to make it clear exactly who has authority to act on behalf of the LLC by a statement of authority with the Florida Department of State. In addition to identifying who has the authority to act on behalf of the LLC, this document allows the LLC to restrict a person’s authority that they might otherwise have under the New LLC Act. Finally, a statement of authority even allows an LLC to deny a person the authority he/she previously had. Accordingly, use of the statement of authority is an effective way for an LLC to clearly identify who has the authority to act on behalf of the LLC and more importantly who does not.

The New LLC Act also requires managers in manager managed LLCs and members in member managed LLCs to provide and maintain accurate information in the LLC’s articles of incorporation and other records filed with the Florida Department of State. Failing to maintain such accurate information could cause certain members and managers to be liable to third parties who suffer losses as a result of inaccurate information.

The New LLC Act further gives a member a non-waivable right to withdraw or resign from the LLC prior to the LLC’s dissolution. Nevertheless, a wrongful withdrawal or resignation may cause liability to the withdrawing member for damages suffered by the remaining members. This change could have serious implications for all members in certain situations such as when a member withdraws to begin operating a business in competition with the LLC.

Finally, pursuant to the New LLC Act, certain provisions, rights and obligations cannot be waived by an operating agreement or the articles of incorporation even if there is an agreement to do so by all members of the LLC. Specifically some of these non-waivable provisions, rights and obligations include: (1) any attempt to completely eliminate the duty of loyalty or care; (2) any attempt to eliminate the obligation of good faith and fair dealing; (3) any attempt to vary the power of a member to withdraw or resign from the LLC; and (4) any attempt to provide an indemnification to a member or a manager for conduct involving bad faith, willful or intentional misconduct or a knowing violation of the law, or a breach of fiduciary duties.

In conclusion, it is important for members of LLCs in existence prior to Jan. 1, 2014, to become familiar with the changes created by the New LLC Act in order to evaluate whether their current structure complies with the law and effectively utilizes the act’s provisions to create an optimal structure for their company. Laurie Thompson

Lex Reception

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