Florida's new revised LLC act.

• Author: Conti, Louis T.M.
• Position: Part 1

This is the first of four articles in the Journal that will address the changes made by the Florida Revised LLC Act (revised act). This article provides background on the revised act and addresses provisions in the revised act dealing with formation and organizational matters, new definitions, the operating agreement, nonwaivable provisions, new service of process rules on LLCs, formation of an LLC, signing and filing of records, agency and authority to bind the company, membership, contributions to the LLC, distributions from the LLC, and liability for improper distributions.

Background and Effective Dates

The revised act was the last bill (SB 1300) approved by the Florida Legislature on May 3. The governor signed it into law on June 14. The revised act was drafted by the Florida Revised LLC Act Drafting Committee (drafting committee), comprised of members of the Business Law, Tax, and Real Property Probate & Trust Law sections of The Florida Bar, who worked on the revisions over a four-year period.

The revised act is a complete revision of the LLC Act, creating new F.S. Ch. 605, effective January 1, 2014 (effective date), for all LLCs formed or registered to do business in Florida on or after the effective date. Florida LLCs in existence before the effective date will continue to be subject to Ch. 608 (existing law) until January 1, 2015, when Ch. 608 is repealed and all LLCs become subject to new Ch. 605. To ease the filing and administrative burdens on the Department of State (department), all records filed on or after the effective date with the department by either a Florida or foreign LLC must comply with the filing requirements of the revised act.

The revised act is based on the Revised Uniform Limited Liability Company Act of 2006, as amended in 2011 (RULLCA), promulgated by the Uniform Law Commission (ULC). The revised act diverges from or supplements RULLCA in many significant respects, such as when the drafting committee believed that adopting the uniform language would be too abrupt a departure from existing law or conflict with department filing procedures, or the committee determined that RULLCA language was not appropriate.

The revised act is organized in the same manner as RULLCA, with the second decimal place of the Ch. 605 section number matching the article number in RULLCA, and in most cases the second, third, and fourth decimal place corresponding to the entire section number of the corresponding section of RULLCA (e.g., F.S. [section] 605.0101 corresponds to [section] 101 of RULLCA, and F.S. [section] 605.0201 corresponds to [section] 201 of RULLCA, etc.). We urge readers to review the RULLCA commentary (found on the ULC website), as well as the legislative white paper prepared by the drafting committee, which parallel the respective section references.

This article covers [section][section] 605.0101 through 605.0406 of the revised act (which correspond to articles 1 through parts of 4 of RULLCA).

New Definitions

The revised act, [section] 605.0102, now includes 69 definitions (up from 26 in existing law), plus 10 additional definitions specific to appraisal rights, which are contained in [section] 605.1061. Many of the new definitions pertain to the new uniform terminology for matters related to mergers, conversions, interest exchanges, and domestications, which will be discussed in subsequent articles.

One commonly misused definition from existing law, "managing member," was intentionally eliminated in the revised act. Too often, parties used that term without knowing what it meant and without understanding what consequences it had on other members in a member-managed LLC. The continued use of "managing member" by LLCs in existence before the effective date is addressed in the revised act to make it clear that the term does not, in and of itself, make the LLC manager-managed. Absent other evidence of an intent to be manager-managed, the general default rule, therefore, should apply, which means the LLC is member-managed, and all members retain statutory apparent authority to bind the LLC, notwithstanding that some members may not be designated "managing members." For LLCs formed after the effective date, the term will not be used by the department in filings or annual reports.

The definition of "member" in the revised act differs from existing law in that it does not require the member to have any economic interest in the company. This permits a member to have voting or management rights without being entitled to any distributions.

The new broadly worded definition of "transfer," along with definitions of "transferee" and "transferable interest," apply to any assignment, sale, gift, encumbrance, transfer by operation of law, or other transfer of a member's interest. A transferable interest is limited to the right to receive distributions, making it consistent with "mere assignee" treatment of a transferee under existing law. There are many other provisions dealing with transferees throughout the revised act, which will need to be considered when a member's interest is transferred. For example, [section] 605.0107(2) clarifies that an operating agreement amendment is binding upon a transferee (even if it changes the company's obligations to the transferee), with the limitation that the amendment cannot impose a new debt or other obligation on the transferee.

New definitions of "sign," "signed," and "signature" explicitly permit manual, facsimile, conformed and electronic signatures, as well as execution by tangible or electronic symbols. A new definition of "writing" includes "electronic or other intentional communication" to clarify that email is a "writing."

The new "knowledge" and "notice" rules, based on RULLCA, impute knowledge or notice, as applicable, of certain facts or events, including certain information contained in articles of organization, statements of authority, and certain other filed records. This is significant for third parties who are dealing with persons purporting to represent an LLC and who want to ascertain management authority.

The Operating Agreement

An LLC is a "creature of contract" as well as an entity enabled and governed by statute. The "contract" in an LLC is its operating agreement, which means the law of contracts generally applies to operating agreements, but the revised act also provides specific rules governing operating agreements.

The "operating agreement" definition expands existing law by providing that in addition to written or oral agreements, an operating agreement may be in other forms, such as "implied, in a record, or in any combination thereof." The definition of "record" is itself very broad, meaning any information that can be inscribed in a tangible medium or stored in electronic or other medium, as long as it can be retrieved in perceivable form (unless excluded by a well-drafted integration or merger provision in a written operating agreement that excludes oral, email, and other everyday communications, and those implied from a course of dealing among members).

The term "operating agreement"...