Florida's new revised LLC Act, part IV.

• Author: Conti, Louis T.M.
• Position: Business Law

This is the fourth in a four-part installment of articles describing the new Florida Revised LLC Act in Ch. 605 (new act), which became effective January 1. This installment addresses foreign LLCs, mergers, conversions, domestications, interest exchanges, and appraisal rights. When reading the following descriptions of the new act, please keep in mind that these are statutory default rules that may be over-ridden or otherwise modified by the operating agreement, except to the extent prohibited in the nonwaivable provisions (1) of the new act.

References to the "uniform act" refer to the Revised Uniform Limited Liability Company Act of 2006 as amended through 2013, while references to "existing law" refer to the Florida Limited Liability Company Act in Chapter 608.

Foreign LLCs Doing Business in Florida

The new act covers foreign LLCs doing business in Florida in [section][section]605.0901 through 605.0911 and generally follows the uniform act in format and substance with modifications conducive to the nomenclature and filing requirement of the Florida Department of State (DOS), Division of Corporations. The new rules are not materially different than existing law and provide for foreign LLCs to apply for certificates of authority to do business in Florida. Perhaps the most important section for foreign LLCs is [section]605.0901, which confirms the governing law that applies to a foreign LLC is the law of the state or other jurisdiction of their formation as to internal affairs and the liability of members and managers for debts, obligations, and liabilities of the company. This is particularly important for foreign series LLCs operating in Florida, since Florida intentionally does not provide for series LLCs and does not address the operation of series LLCs in the state. While this provision does not specifically pertain to the "internal shields" of a series LLC, at least it provides some statutory authority for the general proposition that the laws of the state of formation of a foreign series LLC should be applicable to protect members and managers as to the "LLC's obligations and liabilities." Of course, that does not solve the issues that may arise in connection with the liabilities of the series within the series LLC, particularly if each "series" has different members and managers. Note that some state series LLC statutes treat the series LLC as one legal entity while others treat each series within the series LLC as legal entities in their own right. Florida DOS will require that a foreign series LLC register each series as a separate "filer" for purposes of obtaining a certificate of authority. It remains to be seen how Florida courts will deal with the liabilities of each series within a series LLC.

Interestingly, in a departure from existing law, the requirements to obtain a certificate of authority begin with a warning shot across the bow: "A foreign limited liability company may not transact business in this state until it obtains a certificate of authority from the [d]epartment." (2) It then goes on to describe the requirements for obtaining the certificate, which are generally consistent with existing law, and a nonexhaustive list of activities that do not constitute "transacting business" (hence do not require a certificate of authority), (3) which are also consistent with existing law, as are the consequences of doing business in Florida without having first obtained a certificate of authority. (4)

In a new twist, the new act makes it clear that if the application meets all of the requirements specified in the act, the DOS "shall, upon payment of all filing fees, authorize the foreign LLC to transact business in this state and file the application for a certificate of authority." (5) A foreign LLC may not maintain a legal action without a certificate of authority; however, the failure to have that certificate does not impair the limited liability of the entity, the validity of a contract or other action taken by it, or its right to defend itself in a legal action brought within Florida. (6)

The new act provides clear guidance on amending, (7) revoking, (8) withdrawing, (9) and reinstating following revocation (10) of a certificate of authority. It also provides for actions by the Department of Legal Affairs to enjoin foreign LLCs from conducting business in Florida in violation of the new act. (11)

Organic Transactions: Mergers, Conversions, Interest Exchanges, and Domestications

The new act (12) provides for a variety of "organic" transformations involving a Florida LLC, covering not only mergers and conversions as permitted under existing law, but expanding the playing field to include interest exchanges and in-bound domestications of non-U.S. entities.

The structure of the new act for organic transactions is a big improvement over existing law, with the provisions for each organic transaction modeled in the same manner (there are six sections for each of the four types of transactions, each set in the same order and having the same descriptive captions, with the subsections of each section in the same order). Generally, these provisions correspond to article 10 of the uniform act, except that the definitions (other than those dealing with appraisal rights (13)) have been relocated to the general definition section of the new act (14) and the appraisal rights provisions in the existing law have been placed at the end (the uniform act does not contain appraisal rights).

Definitions

A corollary of simplifying and "homogenizing" these organic transaction provisions into a logically coherent and more user-friendly structure is that several new definitions were used in the uniform act to express concepts in a more generic manner. To navigate the statute effectively, one must become familiar with these definitions-many of which are elaborated with other definitions and very precise conditional terms. Some examples are "entity" (and the items excluded from that term), (15) "governor" and "governor interest," (16) "interest" and "interest holder," (17) "interest holder liability," (18) "organic law" and "organic rules," (19) and "private organic rules" and "public organic record." (20) It will take a few times reading the definitions to appreciate their utility and to gain an understanding of how they work within the transaction rules themselves. Since existing law contains a separate section for the definitions for the appraisal remedy provisions, the drafting committee believed it best to continue using this construct under the new statute. (21)

Rules of General Application

The new act contains rules of general application (22) to organic transactions, which precede the four sets of specific rules dealing with each trans action. The first general rule (23) makes it clear that the LLC statutory provisions do not supersede other laws that also apply to the transactions, such as fraudulent transfer laws, bankruptcy laws, U.C.C. articles 8 and 9, and anti-takeover or change-of-control statutes (such as the affiliated transaction statute or the control share acquisition statute). The second general rule (24) prohibits entities engaged in transactions from avoiding restrictions on the use of property held for charitable purposes without a court order and clarifies the legal effect of a merger on a bequest, gift, or similar transfer. Another general rule (25) carries forward the nonexclusivity rules under current law, recognizing the validity of an organic transaction carried out under other applicable law, even though it may have the same effect as one carried out under the LLC statute. The next general rule (26) allows a reference in a plan of merger, interest exchange, conversion, or domestication to refer to facts ascertainable outside the plan if the manner in which the facts will operate under the plan is specified in the plan. This could also be the basis for allowing a plan to incorporate by reference the provisions of other instruments and records. The last general rule (27) describes the events that will trigger the appraisal rights remedy, how it may be waived, restricted, or eliminated, and certain limitations on the remedy. It also provides procedural rules governing appraisal rights, incorporating another part of the statute for this purpose. (28)

Mergers

Sections 605.1021-605.1026 set forth the rules dealing with mergers involving a Florida LLC. They authorize the combination of one or more domestic LLCs with or into one or more other domestic or foreign entities. The definition of "entities" is very broad, allowing...