One of the threshold issues to consider in loan transactions is determining who is authorized to sign the loan documents on behalf of entity borrowers. This is important not only in cases where the entity is the borrower but also where the entity will serve as a guarantor of other debt. Recently, the Florida Legislature enacted the Florida Revised Limited Liability Company Act that impacts this issue as it applies to limited liability companies.
Under the new Florida Statute 605, we no longer have the “managing member” concept. Rather, an LLC is deemed to be member-managed unless the articles of organization or the operating agreement expressly provide the other management alternative: manager-managed. If the operating agreement does not address this issue, the statute provides the default option that the LLC will be member-managed.
In a manager-managed LLC, the manager will generally be the authorized signor of loan documents. Likewise, a member will generally be the authorized signor for member-managed LLCs. However, it is imperative that the operating agreement be reviewed as it can override certain statutory provisions and will be deemed to govern. A well drafted operating agreement will specifically address the procedure for the entity to borrow money and pledge collateral or to serve as a guarantor for other debt and it may, in fact, require that more than one signor is needed or that a vote of the members is required to authorize the act. If there is no operating agreement, the all of the members should be required to consent to the transaction. In mortgage loan transactions, the lender should also review the public records of the county in which the real property is located to make sure there is no statement of authority recorded which limits the manager or member’s authority to mortgage real property.
The new law also provides that a member can be “dissociated”, an event that terminates that member’s ability to participate as a member in managing the LLC. The statute provides that certain events will automatically result in dissociation including a member’s filing bankruptcy. This necessitates a determination, for any member who will be signing loan documents (either in capacity as a member or as a manager), that the member has not been dissociated. To make this determination, the best practice will be to obtain an affidavit of any member/signor that the member has not been a debtor in bankruptcy or otherwise dissociated. In addition, the lender should conduct a search of the public records as the new law allows the LLC to record a statement of dissociation which will, by law, terminate any prior recorded statement of authority.
From now until January 1, 2015, the new law governs LLCs that were created on or after January 1, 2014. Those existing before January 1, 2014 can elect, by amending their operating agreement, to be governed by the new law and, if they do not, will be governed under the old law until January 1, 2015. On that date, the new act governs all LLCs and the old law is effectively repealed.