Florida’s Revised Limited Liability Act And Your Dealership’s LLC (Part 2)
Automotive Dealership Law on June 29, 2014
On January 1, 2014, Florida’s Revised Limited Liability Act became effective. Florida Statute, Chapter 608 was replaced in its entirety by Chapter 605 (the “New Act”). The New Act affects both transactional and litigation practices.
As a recap, we advised in February that the deadline to ensure you were operating in compliance with the New Act is January 1, 2015 (if you formed your entity before the first of the year. Secondly, if your company has more than one member, and one of them is designated as the “Managing Member,” you probably want to revise your Operating Agreement and Articles of Incorporation to make it clear if their power is any different from the rest of the members. Third, we explained that LLC’s can now file “Statements of Authority” that put the world on notice as to what some members or managers can and can’t do. Finally, we started highlighting some of the 17 non-waivable provisions you should not have in your Operating Agreement. To the extent your members were relying on special provisions that differ from the statutory common denominators, it’s time to revisit the Operating Agreement. Now that 2015 is almost half way here, this is your reminder.
(1) Non-Waivable Provisions; Used to be 6; Now there are 17! Here are few more non-waivable provisions to consider. If any of them ring a bell, they will no longer hold water as of January 1, 2015. No members shall be restricted from suing another member, manager or the LLC to enforce their rights or otherwise protect their interests; No members shall be restricted from suing in the name of the LLC in a derivative action; and No members or managers can be indemnified by the LLC for bad faith conduct, willful or intentional misconduct or knowingly breaking the law, self-dealing, or breaching their fiduciary duties (Not that we have ever seen members try to get away with that at the outset of a business venture).
(2) Appraisal Rights. Compare Sections 608.4352 to 605.1006, Fla. Stat. The New Act provides for additional events that trigger a member’s rights to an appraisal of their interest and a right to bought out by the Company. The prior Act only required appraisal and buy out in the event of a merger or conversion. Now, the same rights also arise when: (i) there is a membership interest exchange with another entity; (ii) when there is a sale of substantially all of the assets of the LLC; (iii) amending the operating agreement so as to dilute a member’s interest to a fraction of one percent (1%) (and the operating agreement allows or requires a buyout in such event); (iv) amending the operating agreement so as to take away voting or other rights which impacts a member adversely; (v) amending the operating agreement so as to take away appraisal rights; and (iv) any other events the members choose to designate as trigger event. It should be noted that Appraisal Rights may be waived in the operating agreement as well, and if the members are in agreement that they would not want a member to be able to leave and force a buyout under any of the above scenarios, then the operating agreement should say so. Otherwise, the New Act shall control.
(3) Inaccurate Information on Sunbiz; Personal Liability. See 605.0205 Fla. Stat. Now, inaccurate information filed with Sunbiz may expose members or managers to personal liability to third parties who suffer losses by relying on the information. To protect yourself as a member, if you are not the party expected to maintain those records from year to year, you can disclaim both the responsibility and the liability by designating another member as the “Records Member,” just as you had to for the “Tax Member.” However, the best practice is to take steps to ensure the LLC files corrective amendments as soon as any inaccuracy comes to your attention. Avoiding personal liability was the reason the members formed an LLC in the first place.
We recommend scheduling a meeting with your corporate counsel to ensure there are no unenforceable items in your LLC Operating Agreement, no foreseeable events that you would like to address so as to avoid premature buy outs, and no ambiguities that could give rise to personal liability for anything. A new Operating Agreement or at least an amendment addressing some of the bigger changes in the New Act may indeed be necessary. 2015 will be here before you know it.