Steven D. Lear, a partner in the Corporate and Securities department, is the Recording Secretary for the task force of the Florida Bar Business Section that is drafting the new Florida LLC Act.
This is the first in a series of blog posts on the new Florida Limited Liability Company Act. Future posts will discuss issues relating to the Act and its ramifications on Miami (and Florida) businesses.
The Need To Update Florida’s LLC Act
Florida is in the process of totally revising its Limited Liability Company (LLC) Act (Chapter 608 of the Florida Statutes). LLCs are the most common form of business entity in Miami (and all of Florida), and are commonly formed to acquire and develop real estate by both foreign and domestic investors and businesses. More LLCs are formed in Florida than in any other state. In 1982 Florida became the second state in the U.S. (after Wyoming) to have an LLC statute. But thirty years later our LLC act is a hodgepodge, quilted together from multiple sources that are not always in synch. Glitches abound. The time has come to update and modernize the Florida LLC Act, and I am part of a task force of the Florida Bar Business Law Section that has been working on a new LLC Act for more than three years. The new Florida LLC Act is almost finished and is expected to go to the legislature later this year for enactment in 2013.
New Act Modeled on RULLCA & Other Legislation
The new Florida LLC Act will look nothing like the existing statute. It generally will be based on the Revised Uniform Limited Liability Company Act (“RULLCA”) prepared in 2006 and amended in 2011 by the National Conference of Commissioners on Uniform State Laws. RULLCA has been adopted in some form by five states and the District of Columbia and also is expected to be enacted this year in California and New Jersey. Eight other states currently are studying it for possible passage. While modeled on RULLCA, we have incorporated desirable provisions from the Delaware LLC Act, the ABA Prototype LLC Act and other leading state LLC acts, as well as a number of provisions from existing Florida law. There will be a transition period for existing LLC agreements to be revised to comport with the new Florida LLC Act. Existing Florida LLCs and their attorneys (assuming they have them) will need to carefully review their operating agreements (assuming they have them) and compare them to the new Act (the current draft is approximately 125 pages, without commentary to be added) to avoid unintended consequences as a result of the major statutory revisions.
Changes to the Act
The new LLC Act will contain a number of material changes from existing Florida LLC law. For example, the new Act will eliminate the concept of a “managing member,” which is fairly unique to Florida and has resulted in confusion as to whether this means an LLC is manager managed or member managed. In addition, Florida LLCs will now be able to have a non-economic member (i.e., one without a capital account), which should facilitate debt financing. And while the new Act, like Delaware, is expected to codify the principle that freedom of contract is king and that any and all remedies in the operating agreement for breach by a member are enforceable, Florida will not go so far as Delaware and allow a complete waiver of fiduciary duties or unlimited indemnification of members and managers.
However, the new LLC Act will not change the recently revised and controversial charging order section of the Florida LLC Act (§ 608.433). Enacted in response to the 2010 Florida Supreme Court’s watershed Olmstead decision, these provisions are the first of any state to expressly provide a right of foreclosure of an LLC membership interest by an unsecured judgment creditor of the sole member of a single member LLC.