Who should care about Florida’s new limited liability company (“LLC”) law? By now someone also has told you to revisit all your LLC operating agreements, because pre-existing operating agreements are not permanently grandfathered under the old law. Unless you are an attorney, three things probably came to mind:
1. I didn’t know the old law was broken; was it broken?
2. I don’t want to pay an attorney to revisit an agreement I already paid for once.
3. I don’t want to spend time rehashing complicated, long forgotten issues with the other owners; that was painful enough the first time.
Consistent with our “just the facts” focus, we won’t comment further on those thoughts about the new law. Over the course of this year we will, however, note practical steps you can take to manage the new law. We also will highlight salient real-world issues most deserving a slice of your limited available attention.
For those attempting triage, today we offer this:
1. Since the new act is largely a “default” act and the rules applicable to manager-managed LLCs are not dramatically changed, the new law is less likely to affect existing manager-managed LLCs with comprehensive operating agreements. But if there are gaps in an operating agreement, an operating agreement has terms conflicting with new non-waivable provisions, or the LLC is member-managed, changes in the new law are more likely to materially affect the legal status and operations of the LLC.
2. The new act increases personal liability for claims arising out of incorrect public filings. It is now more important to make sure that public filings, including Annual Reports filed with the Secretary of State, are accurate.
There will be more to come later, but for those with interest now, here is a broader overview of the new law:
Florida’s new LLC act is based largely on the model 2011 Revised Uniform Limited Liability Company Act. Highlights include:
• More stringent standards—including the specter of personal member or manager liability for inaccurate or out-of-date information—are imposed for Secretary of State filings, including annual reports.
• The new act is largely a “default” statute, like the old act. Although the list of non-waivable provisions is expanded, most provisions only take effect in the absence of superseding language in the operating agreement.
• It gives agency power to all members to bind the LLC under “statutory apparent authority,” unless the LLC elects to be manager-managed or the operating agreement provides otherwise; LLCs may file a public statement with the state to put third parties on notice as to who has the power to bind the LLC.
• It eliminates the “managing member” concept.
• It provides more detailed guidance regarding LLC mergers and conversions, and permits interest exchanges and in-bound domestications by non-U.S. entities
• It modifies default management and voting rules for both members and managers
• It allows members to dissociate at any time by withdrawing by express will, and provides a list of default dissolution events, including as provided in the operating agreement, upon the unanimous consent of the members, upon the passage of 90 days without the company having a member, and upon judicial or administrative dissolution.
• It clarifies and modifies the rules governing winding up, appraisal rights, service of process, judicial dissolution, and the appointment of receivers and custodians.
• Although most of the traditional fiduciary duties under the old act are left unchanged, the new law modifies the “duty of care” standard, by replacing the “ordinary care/business judgment rule” standard with a duty to refrain from engaging in grossly negligent or reckless conduct, willful or intentional misconduct, or knowing violations of law.
• The new act incorporates the 2011 amendments to the old act regarding charging orders (known as the “Olmstead Patch”).
• The new act did not adopt the concept of “series LLCs” from the RULLCA because of concerns as to how such entities work and their impact on LLC stakeholders. The new act also does not permit “shelf” LLCs (an entity that has no members when it is formed). Neither were allowed under the old law either.
• The new act went into effect on January 1, 2014 for LLCs organized on or after that date. For pre-existing LLCs, the new act will not go into effect until January 1, 2015, unless they elect to cause the new act to apply sooner. The new act will be codified in Chapter 605, Florida Statutes, and will replace the old act currently in Chapter 608, Florida Statutes.