What’s in Florida’s New LLC Act?
On June 14, 2013, Florida Governor Rick Scott signed into law SB 1300, the Florida Revised Limited Liability Company Act (RLLCA). This act repeals the old LLC statute and creates a new section 605 to control the formation, governance, and liabilities of Florida Limited Liability Companies (LLCs).
The RLLCA governs new LLCs formed after January 1, 2014. LLCs formed before January 1, 2014, may elect to be governed under the old LLC statute until January 1, 2015. After January 1, 2015, the RLLCA will apply to all Florida LLCs.
Under the RLLCA, LLCs are still managed and taxed like partnerships, and members of the LLC retain the usual protections against personal liability for company debts. However, the RLLCA is otherwise a massive overhaul when compared to the old statute. A short outline of some of the differences affecting the liability of LLCs and their members is as follows:
1) Service of Process – The RLLCA now lists, in order, all the parties one may serve. In order of priority, they are as follows: the registered agent, a manager or member, an employee designated to accept service, and finally the Florida Secretary of State.
2) Transactions by an Interested Member – The RLLCA keeps the safe harbor provision for managers who participate in potentially conflicting transactions. The RLLCA distills the three-pronged analysis from the former legislation to solely an inquiry into fairness. Transactions fair to the LLC are neither void nor voidable. If the interested member disclosed his interest or the material facts of the transaction, or if the transaction was authorized, approved or ratified, the person challenging the transaction has the burden to show the transaction was unfair. If none of the above conditions are present, however, the interested member has the burden to show that the transaction was fair.
3) Indemnification – While retaining the same restrictions on indemnification from the old statute, the RLLCA forbids indemnification for violations of the duty of loyalty, duty of care, and obligation of good faith and fair dealing.
4) Dissociation – Members now have the right to dissociate at any time. However, members who dissociate may be liable to the LLC for wrongful dissociation.
5) Derivative Actions – Under the RLLCA, a member may now maintain a derivative action if the other members do not take action within a reasonable time, not to exceed 90 days. Furthermore, a demand is unnecessary if demand either would be futile or irreparable injury would result in waiting for other members to take action. The RLLCA also provides procedures for the appointment of a special litigation committee to investigate any derivative claims.
The RLLCA also imposes new rules regarding LLC formation and governance.
1) Expanded List of Nonwaivable Provisions – The RLLCA expands the list of default rules which may not be changed by party drafting from six to seventeen.
2) New Statement of Authority Provision – The RLLCA allows LLCs to file statements of authority, which give notice to those wishing to do business with the LLC of persons who may enter into agreements on behalf of the LLC.
3) Elimination of “Managing Member” Structure – The RLLCA eliminates the “managing member” designation in the old LLC statute. LLCs will be member-managed, not manager-managed, unless specified otherwise.
4) New Events which Trigger Appraisal Rights – The RLLCA adds six new appraisal rights triggers in cases of major changes to the LLCs structure and governance.
5) Interest Exchanges – The RLLCA allows for interest exchanges to effectuate the combination of two entities. In an interest exchange, the acquiring entity holds the interest of the acquiree.
These changes are only a portion of the new provisions under the RLLCA. Because the RLLCA will eventually apply to all Florida LLCs, those with questions regarding the RLLCA should contact counsel.
For more information, please contact Cal Abritton at firstname.lastname@example.org.