17 unenforceable provisions
One important impact of the New LLC Act is that certain provisions in an existing LLC operating agreement may be unenforceable. Whereas the existing LLC Act contains only six nonwaivable provisions for LLC operating agreements, the New LLC Act contains 17 such provisions. For example, a member’s power to voluntarily withdraw prior to dissolution (a power not granted by the existing statute, absent a provision to the contrary in the operating agreement) cannot be waived. Additionally, a Florida LLC will no longer be able to alter the grounds for judicial dissolution, nor will it be able to change the requirement that its internal affairs (and the liability of its managers and members for the LLC’s obligations) be governed by Florida law. Moreover, an operating agreement provision that would vary a member’s right to approve a merger, interest exchange or conversion, will be unenforceable, as will any provision that purports to vary the statutorily mandated contents of a plan of merger, plan of interest exchange or plan of conversion. Thus, regardless of whether an existing LLC voluntarily elects to opt in prior to 2015, a review of its current operating agreement may be advisable to ensure compliance with the New LLC Act and, where possible, to plan workarounds for the new nonwaivable provisions.
Managing member term eliminated
One of the more fundamental changes to the law is the elimination of the term “managing member.” For LLCs formed after the effective date of the New LLC Act, the term “managing member” will not be recognized by the Department of State in filings or annual reports. Although an LLC will still be able to be manager-managed, the mere use of the term “managing member” in the LLC’s governing documents will not make the LLC manager-managed. Absent other evidence or indication of intent to be manager-managed, any member is clothed with the authority to bind the LLC (unless that member’s authority has been limited as explained below). As a corollary, all members could be liable for certain actions taken by the LLC, such as the authorization of improper distributions. In light of the potential expansion of liability, the New LLC Act permits an LLC to file a “Statement of Authority” that grants or limits the authority of a person (or class of persons) to take certain actions on behalf of the LLC.
Operating agreement definition expanded
Another notable change in the law relates to the foundational issue of what constitutes an “operating agreement.” Although the existing statute contemplates that an operating agreement can be oral rather than written, the New LLC Act expands the definition of “operating agreement” so that it “may be oral, implied, in a record, or in any combination thereof.” The agreement need not even be referred to as an “operating agreement.” Given that a court may now enforce even an “implied” agreement (or an implied amendment to an existing operating agreement), it is more important than ever to have an effective integration clause that merges all prior oral or written agreements into the operating agreement and a provision requiring all amendments to the operating agreement to be in writing.
Protection against creditors enhanced
The New LLC Act enhances protection against creditors. For example, creditors of an LLC will no longer have the right to bring an action for judicial dissolution. Moreover, “piercing the corporate veil” (a legal doctrine used to impose personal liability on the owners of a company for the company’s obligations) may become more difficult in light of a new provision establishing that an LLC’s failure to observe formalities in managing its affairs does not constitute a basis for holding a member or manager liable for the LLC’s obligations.
Transactions relating to an LLC’s structure will be affected. For example, the New LLC Act makes interest exchanges available to LLCs for the first time. This type of transaction was previously available only to corporations. Non-United States entities will be able to domesticate as Florida LLCs while retaining their legal status as non-United States entities in their place of origin. Further, appraisal rights will be expanded, with seven types of events (compared to the current two) sufficient to trigger appraisal rights.
Types of filings expanded
The New LLC Act expands the types of filings the Department of State will accept. For example, an LLC will be able to file a “Statement of Correction” to correct any of the LLC’s filings, a power previously reserved for correction of articles of incorporation within 30 days of filing. When a member or manager is no longer affiliated with an LLC, the Department of State, under the New LLC Act, permits the LLC to file “Statement of Dissociation” (for members) or ”Statement of Resignation” (for managers).
For more information on Florida’s Revised Limited Liability Company Act and how it may impact your business, please contact one of the attorneys listed below.