RECENT CHANGES IN LAW THAT MAY IMPACT YOUR EXISTING LLC OPERATING AGREEMENT

By Alex D. Dunlap

Only within the last 20 years or so have limited liability companies (LLCs) become popular. However, LLCs have become the entity of choice for many business owners due to their flexibility. Although many LLCs may have been recently formed, recent changes in the Florida statutes that govern LLCs will affect all LLCs beginning next year. On June 14, 2013, the governor signed the Florida Revised Limited Liability Company Act into law (codified in Chapter 605 of the Florida Statutes) (hereinafter referred to as the “Revised Act”). Currently, the Revised Act applies only to LLCs formed after January 1, 2014 and to those LLCs formed prior to January 1, 2014 that have elected to have the Revised Act apply. However, after January 1, 2015, the Revised Act will apply to all Florida LLCs, regardless of the date of formation, and to their operating agreements.

As such, those whose businesses were formed as limited liability companies under the prior Act should familiarize themselves with the Revised Act to determine its effect on their respective LLCs. There have been many articles written regarding this change; however, this article will attempt to focus on key changes that may impact a majority of the operating agreements of existing LLCs.

First, under the prior Act three different types of LLCs existed: 1) member-managed, 2) manager-managed and 3) managing member managed. Under the Revised Act, the latter category has been eliminated. Different procedural and substantive rules apply to approving the decisions of management depending on whether an LLC has a member-managed or manager-managed management structure. As was the case under the Prior Act, under the Revised Act, if an LLC’s operating agreement or articles of organization fail to state a management structure, the LLC is deemed to be member-managed. However, the Revised Act omits the term “managing member,” an all too often misused and misunderstood management term. As a result, under current Florida law, the use of the term “managing member” in an operating agreement or articles of organization is the same as failing to state a management structure, and such entities will be deemed to be member-managed. This is critically important to recognize because many operating agreements referred to a managing member structure, and if the intent was to follow the structure of a manager-managed LLC, then the operating agreement (and likely the Articles of Organization) will need to be amended to reflect this intent.

Many of the other changes under the Revised Act deal with parts of the operating agreement that owners either simply take for granted, or, don’t really pay attention to until an issue arises in the future. Most business owners are busy running the actual company. However, there are a few important considerations that may need attention.

Under the prior Act, operating agreements could be drafted in such a manner to override Florida Statutes in many respects, including, preventing members from disassociating (exiting) from the LLC, limiting member’s access to records, giving broad exculpation and indemnification to managers and members and perhaps even giving the ability to change the governing law. The Revised Act now contains certain “nonwaivable” provisions that cannot be changed or overruled by the language of the operating agreement.

Some of these nonwaivable provisions deal with the ability of the LLC to:
• vary the governing law
• eliminate the duty of loyalty or the duty of care
• eliminate the obligation of good faith and fair dealings
• relieve or exonerate a person from liability for conduct involving bad faith, willful or intentional misconduct, or knowing violation of law
• unreasonably restrict the right to records
• vary the power to of a member to disassociate
• vary the grounds for dissolution
• vary the requirement to wind up the company’s business activities
• unreasonably restrict the right of a member to maintain a direct or directive action
• indemnify the conduct of member or manager for conduct involving bad faith, willful or intentional misconduct, a knowing violation of law, a transaction in which the member or manager derived improper personal benefit, certain improper distributions, or violations of the duty of loyalty or duty of care.

While many of the above restrictions may not conflict with all of the terms of your existing operating agreement, certain provisions of the Revised Act may and therefore it is important to revisit whether your existing operating agreement should be amended, or, at least reviewed.

This Article does not constitute legal advice and may not be relied upon as such.  Each individual’s facts and circumstances are different. If you have any questions regarding your particular situation, please consult with legal counsel.

Of course, to this point, this article has focused on LLCs that are governed not only by the Articles of Organization, but also by existing operating agreements. Nevertheless, due to the simplicity of forming/creating LLCs, many people forgo the important step of signing an operating agreement. The Revised Act will apply to those LLCs as well, and the application of some of the default provisions of the Revised Act that can be waived or modified by agreement may not be desired. Therefore, members of previously formed LLCs without an operating agreement may find the approaching application of the Revised Act as an ideal opportunity to establish an operating agreement.

Conclusion
Any operating agreement for an LLC formed after January 1, 2014, should be prepared under the Revised Act. However, in addition, because the Revised Act will apply to all operating agreements, starting on January 1, 2015, even old operating agreements may need to be revisited to ensure that the changes in the law do not result in unintended consequences or misunderstandings (this is true for an LLC that may have been formed as recently as 2013 or earlier).

Bar Admissions:
2014, Florida

Practice Areas
Estate Planning, Family Wealth Planning, Probate, Tax Planning, Business Law, Wills & Trusts

Education and Honors:
Levin College of Law – University of Florida (
LL.M. in Taxation, 2014)
Levin College of Law – University of Florida
(J.D., 2013, cum laude)
Fisher School of Accounting – University of Florida
(MAcc., 2010, cum laude)
Fisher School of Accounting – University of Florida
(BSAcc., 2010, cum laude)

Professional Activities and Experience:
Member:  Florida Bar Association

Salvatori, Wood, Buckel, Carmichael & Lottes
239.552.4100 | www.swbcl.com

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