Planning with LLCs under the New Florida Limited Liability Company Act
Corporate Services Law Update 07/03/14 Elizabeth G. Nowakowski, Joseph D. Masterson, Laura M. Holm
The Florida legislature recently adopted the Florida Revised Limited Liability Company Act (the “New Florida Act”) pertaining to limited liability companies (“LLCs”). For LLCs that were organized prior to January 1 of this year, the operating agreement and public filings might need to be revised in light of the New Florida Act. The New Florida Act became effective for new Florida LLCs on January 1, 2014, and will become effective for existing Florida LLCs no later than January 1, 2015. Issues raised by the New Florida Act include:
- The concept of a “managing member” has been eliminated. Under the New Florida Act if an existing LLC had a managing member but the operating agreement is otherwise silent about its management structure, when the New Florida Act takes effect for that LLC, the LLC will be member-managed and each member will have actual authority to bind the LLC. If this scenario is not desired, the LLC documentation needs attention.
- If an existing LLC is manager-managed or its operating agreement otherwise restricts actual authority to fewer than all members but no public record says that (which is completely lawful under Florida law), every member will have “statutory apparent authority” to bind the LLC vis-à-vis third parties that don’t know the actual authority is restricted. The LLC should consider whether to create a public record to align apparent authority with actual authority. This can be done in several ways, such as by causing the LLC’s articles of organization to provide that only managers (or other specified persons) have authority to bind the LLC. Filing a “Statement of Authority” (a new concept under the New Florida Act) may also limit apparent authority but would have no impact on actual authority and could be subject to inconsistent filings, so causing the articles of organization to say that only managers (or other specified persons) have authority to bind the LLC is our recommended approach.
- Under the New Florida Act, all members have the power to dissociate even if that breaches the operating agreement and causes damages. This nonwaivable statutory provision is a change from the prior law, so the existing operating agreement probably does not address this change in the law.
- Under the old law, an LLC’s profits and losses were allocated among members under a default rule, whereas the New Florida Act is silent on this issue. Thus, the operating agreement should now address the allocation of profits and losses in various situations.
Under the old law, the default rule for amending the operating agreement or articles of organization requires the affirmative vote of the holders of a majority of the LLC profits interests. Under the New Florida Act, the default rule requires unanimous approval of the members to amend the operating agreement or articles of organization. (In both cases, the operating agreement might provide for a different requirement.) Therefore, if an LLC needs to make any changes, it may be easier to accomplish the changes in 2014, before the New Florida Act takes effect for existing LLCs on January 1, 2015.
For more information on the New Florida Act or other business entity issues, contact Elizabeth Nowakowski at (414) 277-5815 / firstname.lastname@example.org, Joseph Masterson at (414) 277-5169 / email@example.com, Laura Holm at (239) 434-4905 / firstname.lastname@example.org, or your Quarles & Brady attorney.