Sarasota, Fla. — When Florida’s new LLC Act goes into effect on Jan. 1, 2014, Sarasota attorney Greg Marks will finally see his handiwork in action. Marks, a partner with the law firm of Shumaker, Loop & Kendrick, LLP and the Reporter of the Florida Bar Drafting Committee formedfour years ago to revise the Florida LLC Act, was instrumental in writing the new law, which stands to impact both new and existing LLCs throughout the state.
“The current LLC statute was first adopted in Florida in 1982 and was due for a major overhaul,” said Greg Marks, who has actively participated in Florida Bar drafting committees over the last 20 years. “Florida was the second state in the country to even have an LLC law; we were one of the pioneers. Being such an old statute, it no longer adequately addressed the needs of current businesses. So our most recent drafting committee did an entire replacement of the law,” said Marks.
The LLC Act was signed into law in June 2013 and is intended to make Florida a more attractive place to organize and operate an LLC. It creates Chapter 605 of the Florida Statutes and modernizes the existing law, which contains numerous amendments. “It’s been amended so many times that some parts are in conflict with other parts and not integrated as well as they should be. This not only causes ambiguity but also makes it a difficult statute to navigate; it’s like an old quilt, with some patches not sewn together very well,” said Marks.
Marks says the new law is based primarily on the Revised Uniform Limited Liability Company Act of 2006, as amended in 2011, but retains many existing provisions and concepts of the current LLC law. Some provisions or ideas were borrowed from other states, such as Delaware, which has a good reputation for accommodating the practical needs of businesses, while other parts were based on Florida’s corporation statute.
The new law emphasizes the importance of having an operating agreement to define how an LLC is to be structured and managed. It also provides businesses with a lot of flexibility in designing an LLC’s ownership and management structures, capital, distribution and profit and loss participation schemes, and prescribing the rights and duties of members and managers.
Some important changes contained within the new law include:
- Many more “nonwaivable” requirementspertaining to operating agreements
- Rules for determining who is liable for inaccurate records filed with the Department of State
- New definitions and rules for the two management structures that an LLC may have, and for determining the authority of members and managers in both, including the elimination of thedefinition of “managing members”
- New member approval requirements for certain transactions
- Detailed guidelines pertaining to the authority of persons to bind the LLC, including new “statements of authority” forms that can be filed with the Department of State to either grant or restrict that authority
- New rights and duties of a transferee of a membership interest
- New provisions relating to the withdrawal or “dissociation” of a member
- New grounds for judicial dissolution and new rules for appointment of receivers and custodians in the event of such a dissolution
- An elective “buy-out” process for deadlocks to avoid judicial dissolution, and an option to have the operating agreement contain deadlock breaking measures that would over-ride judicial dissolution upon a deadlock
- Provisions for derivative and other legal actions, including new special litigation committee procedures
- New rules regarding service of process on LLCs
- The allowing of interest exchanges, as well as the domestication of non-U.S. entities desiring to become a Florida LLC
- New transactions and events for the dissenter appraisal remedy, which currently apply only to a merger or conversion of the LLC
- Charging order provisions to address the effect of the Florida Supreme Court’s Olmstead case (current law was carried forward)
Marks notes that existing LLCs may want to update their operating agreements and articles of organization before the new law becomes effective. “It will be more important than ever for LLCs to prescribe and document whether they are ‘manager-managed’ or ‘member-managed’,” explains Marks. “This decision will ultimately determine how management decisions must be approved, who has the authority to approve them, and who has the power to represent and speak for the company.” He added that the elimination of the “managing member” definition must be factored into this analysis because the continued use of this term under the new law could have unintended consequences.
Marks stresses that it is important for an LLC to not only have a written operating agreement, but well-drafted “integration” and “amendment” clauses as well. “The new law defines the term ‘operating agreement’ very broadly, and it could conceivably include matters expressed orally, implied by conduct, or contained within any other record, with the term ‘record’ being very broad and including emails and other electronic transmissions,” said Marks. “Using these clauses can prevent oral communications or other ‘records’ from being considered part of the operating agreement.”
Marks recommends that owners and managers of existing Florida LLCs, as well as parties doingbusinesses with LLCs, determine how the new law will affect them and their contractual agreements.
The new law becomes effective Jan. 1, 2014, and all LLCs formed and records filed with the Department of State on or after this date must comply with the new law. Marks said that new filing forms should be available at the Department of State’s website before the end of thisyear. LLCs formed before January 1, 2014 will have until Jan. 1, 2015 to come into compliance, but may elect to have the new law apply to them earlier.
Gregory M. Marks is a partner with the law office of Shumaker, Loop and Kendrick, LLP and was the Reporter of the Florida Bar Drafting Committee for the Revised Florida LLC Act. He served as the Chair and Reporter of the Florida Bar committee that drafted the Florida Limited Partnership Act Drafting Committee in 2005 and the new “cross species” merger and conversion rules in the other Florida business statutes at that time. His practice emphasizes the representation of businesses and their owners, particularly entrepreneurs, developers and investors involved in start-ups, acquisitions, and the sales and reorganizations of business entities of all kinds. He has been involved in the organization of thousands of LLCs, partnerships and other entities and the selection and implementation of organizational structures for many types of domestic and international business enterprises and transactions. He is a former AdjunctProfessor of Law at Stetson University, the current Chair of the Florida BarTax Section LLC Sub-Committee, former member of the ABA LLC law drafting committees, and he has published a broad range of articles on business, legal and tax issues and authored and edited sections of legal treatises on tax and corporate law.
Founded in 1925, Shumaker, Loop & Kendrick, LLP is a full service business law firm withmore than 225 attorneys practicing in Toledo and Columbus, Ohio; Tampa and Sarasota, Florida; and Charlotte, North Carolina.