Florida's new revised LLC act.

• Author: Conti, Louis T.M.
• Position: Part 2

This is the second of four articles that will address the changes made by the Florida Revised LLC Act (revised act) effective January 1. This article will address provisions in the revised act dealing with management structures, voting rights, fiduciary duties, conflicts of interest, recordkeeping and inspection rights, transfers, and charging orders.

As mentioned in part one of this series, the features of the revised act discussed below are "default" provisions, all of which can be overridden or supplemented by the terms of the operating agreement of the LLC, with the exception of the nonwaivable items described in F.S. [section] 605.0105.

Management

The revised act changes existing law (e.g., eliminating the term "managing member"), but does not follow RULLCA precisely. The new management rules are found in F.S. [section] [section] 605.0407 through 605.04074.

All LLCs are either member-managed or manager-managed. If the articles or operating agreement do not expressly provide that the LLC will be "manager-managed" or "managed by managers" or that "management is or will be vested in managers" or "words of similar import," then the LLC will by default be deemed member-managed pursuant to F.S.[section] 605.0407. The old term "managing member(s)" is not used in the revised act, and if used by pre-existing LLCs, the company will be deemed to be member-managed, as that term is not considered "words of similar import" sufficient to make the company "manager-managed," so the use of that term should be discontinued, and existing LLCs should clearly identify as "manager-managed" if that is what they intend. The best practice is to expressly state in the articles or operating agreement which management structure has been elected. As noted in part one of this article, if the articles state that the LLC is manager-managed, that has constructive notice effect under F.S. [section] 605.0103.

In manager-managed LLCs, matters relating to the activities and affairs of the company are decided exclusively by the manager(s), and no member has any management rights, subject to certain voting rights expressly reserved to them in the statute (discussed below).

In member-managed LLCs, all members have management authority unless specifically provided otherwise. A member may not be compensated for managing a member-managed LLC; however, if there is no agreement to the contrary, a member can be reasonably compensated for services performed during the winding up of the LLC. Additionally, if a member advances money in excess of the capital that the member agreed to contribute, the member can be reimbursed for excess funds advanced to the LLC.

The revised act provides that management rights afforded to members and managers are not affected by dissolution of the LLC. However, if a person wrongfully causes dissolution of the LLC, that person thereafter loses the right to participate in management.

Members and managers may delegate rights and powers to manage the LLC, and F.S. [section] 605.04071 includes a list of persons to whom members and managers can delegate powers and rights. If a member or manager delegates rights or powers, the member or manager does not lose the rights and powers associated with their status.

Selection and Terms of Managers in a Manager-managed LLC

As in existing law, new F.S. [section] 605.04072 provides that managers may be chosen by the consent of the member or members holding more than 50 percent of the then-current percentage or other interest in the profits of the LLC. In RULLCA, managers may be selected or removed by a majority of the members voting per capita, so the Florida approach significantly differs from the uniform act.

A manager continues to act until a successor is chosen; the manager resigns, is removed, dies; or, if the manager is an entity, until it terminates. A manager may be removed at any time without notice or cause by consent of the members holding more than 50 percent of the then-current percentage or other interest in the profits of the LLC. A manager remains liable for any debt, obligation, or other liability to the LLC or members that the manager incurred while a manager. The dissociation of a member who is also a manager triggers the member's automatic removal as a manager.

Voting Rights of Members and Managers

In a member-managed LLC, each member has the right to vote on a company's activities, proportionate to that member's then-current percentage or other interest in the profits of the LLC. The revised act F.S. [section] 605.04073 requires that the vote or consent of a majority-in-interest (rather than a per capita simple majority as in RULLCA) is required to undertake an act, whether within or outside the ordinary course of the company's activities or affairs. The articles and operating agreement may be amended only with a unanimous vote or consent of the members, which is a change from existing law. The admission of a new member, expulsion of an existing member, and dissolution of the LLC, also require unanimous vote or consent. (1)

In a manager-managed LLC, each manager has equal rights in the management and conduct of the company's ordinary course activities and affairs. An affirmative majority vote will suffice, but if the action is taken without a meeting, a unanimous consent in a record is required. An act not in the ordinary course of the company's activities and affairs requires the vote or consent of a majority of the managers, as well as a majority in interest of the members. The revised act contains separate voting provisions relating to mergers, conversions, and interest exchanges, as well as the procedures for submitting the transaction to members for approval, which will be addressed in a subsequent installment of this series.

In another departure from RULLCA, if a member has transferred all or a portion of the member's transferable interest in the LLC to a person who is not admitted as a member, if the transferor has not been dissociated, the...