United States: Florida Enacts A New Revised Limited Liability Company Act

Louis T. M. Conti is a Partner in our Tampa office .

On May 3, 2013, as the last act of the 2013 Florida Legislature, the House passed into law the new Florida Revised Limited Liability Company Act (the "New LLC Act") in the form of Senate Bill 1300, and as amended, House Bill 1079.

The New LLC Act is codified in new Chapter 605 of the Florida Statutes and will become effective forall new limited liability companies formed or registered to do business in Florida on or after January 1, 2014.

As of January 1, 2015, it will repeal the existing Florida LLC Act in Chapter 608 for all limited liability companies formed or registered to do business in Florida prior to January 1, 2014. Until January 1, 2015, all LLCs in existence before January 1, 2014 may continue to operate under the provisions of the existing LLC Act in Chapter 608 (the "Existing LLC Act"), unless they elect to be governed by the New LLC Act before January 1, 2015.

Brief Legislative History of the Florida LLC Act

Florida's Existing LLC Act was first enacted in 1982 (Florida was the second state to adopt an LLC statute). The state's LLC Act was little used prior to 1998 because Florida imposed corporate income tax on limited liability companies. However, in 1998 the corporate income tax on limited liability companies was eliminated. In 1999, Florida's LLC Act underwent its most significant revisions since it was first enacted. Additional revisions were made in 2002 to clean up various aspects of the LLC Act, and in 2005, revisions were made to coordinate mergers and conversions as well as appraisal rights among Florida business entities. The most recent amendment was in 2011. It was designed to redress the Olmstead decision, which affected charging orders against LLC membership interests in single-member LLCs.

The New LLC Act 

The New Act was drafted during a period beginning in 2008 and ending with the 2013 Florida Legislative Session. It was undertaken by a Drafting Committee of The Florida Bar with representatives from the Business Law, Tax Law, and Real Property Probate and Trust Law sections of The Florida Bar. Litigation aspects of the New LLC Act received substantial input from a subcommittee of the Business Litigation Committee of the Business Law Section. The legislative sponsors for the New LLC Act, Senator David Simmons of Orlando and Representative Charles McBurney of Jacksonville, got the bill through their respective legislative chambers.

The Florida Revised LLC Act is based on the Revised Uniform Limited Liability Company Act (2006), as amended in 2011 ("RULLCA"), which was promulgated by the Uniform Law Commission. However, the New LLC Act deviates from RULLCA in a number of respects, principally by retaining some of the existing Florida LLC Act provisions which the drafting committee and legislative sponsors believed were important to provide continuity and consistency for Florida lawyers, judges and businesses.

The New LLC Act introduces a number of improvements and additions to Florida statutory LLC law. It remains a default statute, which means that except for the "nonwaivable" provisions in new Section 605.0105, the members may override the statutory default rules by their operating agreement. Thus, the operating agreement remains the principal focal point for examination of the rights and responsibilities among the members. As a result, careful drafting of the operating agreement remains essential for any multi-member LLC.

The New LLC Act changes a number of things. It:

  • introduces significantly more definitions than in the Existing LLC Act, many of which are necessary because of new provisions not in the Existing LLC Act (e.g., new provisions permitting domestication in Florida of non-U.S. entities as Florida LLCs)
  • expands the list of nonwaivable default rules in Section 605.0105 which cannot be "trumped" or overridden by the operating agreement
  • modifies the rules for the power (authority) of members and managers to bind the company
  • modifies provisions addressing the LLC's management structure (including the elimination of the term "managing member")
  • modifies default agency and voting rules for members and managers
  • modifies provisions relating to member dissociation and company dissolution
  • modifies the provisions for judicial dissolution and appointment of receivers and custodians
  • modifies the provisions for service of process on LLCs and creates a new section in Chapter 48 addressing service of process on LLCs
  • modifies provisions for derivative actions by members and adds express provisions regarding special litigation committees
  • modifies provisions governing organic transactions such as mergers and conversions, and adds provisions to permit interest exchanges and in-bound domestications by non-U.S. entities
  • modifies appraisal rights provisions, including adding events that trigger appraisal rights, and provides clarifications to the procedural aspects of the appraisal rights provisions, particularly in dealing with organic transactions approved by way of written consent

The New LLC Act did not change:

  • the rules regarding charging orders (therefore, the 2011 amendments to Existing Law Section 608.433, the Olmstead Patch, continue unchanged)
  • the overall fiduciary duties construct of Existing Law (with one exception to the duty of care described below)

The New Act does not adopt the "un-cabined" fiduciary duty approach of RULLCA, which describes core duties but does not make them exclusive, and the it does not adopt RULLCA's ability to substantially eliminate fiduciary duties by agreement of the members.

However, RULLCA replaced the "ordinary care/business judgment rule" standard when examining the duty of care, and replaced it with a "duty to refrain from engaging in grossly negligent or reckless conduct, willful or intentional misconduct, or knowing violation of law." The New LLC Act adopts that RULLCA approach.

In addition:

  • The New Act maintains the statutory apparent authority of members, which is a direct refutation of the RULLCA approach that eliminated statutory apparent authority of members.
  • LLCs have traditionally been modeled on the general partnership construct of statutory apparent authority for its members. That is, in the absence of explicit provisions to the contrary, a member of an LLC has statutory apparent authority to bind the LLC.
  • RULLCA deviated from this fundamental construct because more LLCs are manager-managed, and in the modern world of business, it was not clear to third parties who had authority to bind the LLC. RULLCA went to a model that eliminated statutory apparent authority for members and relied on the law of agency generally to address who has the power to bind the company.
  • In contrast with RULLCA, the New Act retained Existing LLC law on apparent authority, but follows the aspect of RULLCA that permits the filing of Statements of Authority to put third parties on notice as to who has authority to bind the LLC. 
  • Importantly, the New LLC Act retains the default rule that members are agents of the LLC and have the authority to bind the LLC in all member-managed LLCs. 
  • The New LLC Act makes it clear that members are not agents of the company and cannot bind the company if the company elects to be manager-managed.
  • The concept of a "Shelf" LLC (an entity which has no members when it is formed) is still not permitted in Florida.
  • The concept of a "Series" LLC is still not permitted to be formed in Florida. There are a number of serious concerns and questions regarding Series LLCs. Because of those significant concerns, the ULC has recently created a national drafting committee to draft a Uniform Series LLC Act, and the Florida Drafting Committee (or its successor) expects to consider Series LLC provisions further after the ULC drafting committee completes its work in another year or two.

Conclusion

The New LLC Act should make the use of a Florida LLC more attractive for business owners considering the use of an LLC.

Businesses that are currently LLCs operating in Florida should consult with counsel to determine whether changes to their operating agreements should be made in light of the New LLC Act.

Third parties doing business with LLCs in Florida should also consult with counsel to determine whether any changes may be necessary in their contractual or business arrangements as a result of the New LLC Act.

The author served as Chair of The Florida Bar committee that was responsible for the new Florida Revised LLC Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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