In May, 2013, the Florida legislature passed into law the new Florida Revised Limited Liability Company Act (the “New Act”) which becomes effective on January 1, 2014 for all limited liability companies (“LLCs”) formed in the State of Florida on or after January 1, 2014. The New Act applies to all LLCs, regardless of when formed, beginning January 1, 2015 and the existing Florida Limited Liability Company Act (the “Existing Act”) will be repealed on that date. The New Act clarifies several positions relating to the operating agreement and greatly expands the list of non-waivable provisions (those provisions which the operating agreement may not override).
The New Act expands the definition of “operating agreement” by providing that, in addition to written or oral agreements, an operating agreement may be implied, in a record, or in any combination thereof. The New Act also makes clear that an operating agreement may be made by a single member. The operating agreement governs relations among the members and the LLC, and the activities and affairs of the LLC. However, the operating agreement has no effect on third parties, including the Department of State and other governmental agencies.
The New Act is a default statute which means that, except for certain non-waivable provisions, the operating agreement may trump the statutory default rules. Thus, the New Act is comprised of mostly default rules or gap fillers for issues on which the operating agreement is silent. The non-waivable provisions in the New Act, however, are far more extensive than the non-waivable provisions in the Existing Act.
The New Act recognizes that certain matters should not be subject to change by the operating agreement and sets forth a list of “non-waivable” provisions. Specifically, the operating agreement may not do any of the following: (a) vary an LLC’s capacity to sue or be sued in its own name; (b) vary the applicable law governing LLCs; (c) vary the procedure pertaining to registered agents or the Department of State; (d) eliminate the duty of loyalty or the duty of care; (e) eliminate the obligation of good faith and fair dealing; (f) relieve or exonerate a person from liability for conduct involving bad faith, willful or intentional misconduct, or a knowing violation of law; (g) unreasonably restrict the duties and rights to records; (h) vary the power of a person to dissociate; (i) vary the grounds for dissolution specified; (j) vary the requirements to wind up the LLC’s business; (k) unreasonably restrict the right of a member to maintain an action against another member or manager; (l) vary the provisions relating to the formation of a special litigation committee as a result of a derivative action; (m) vary the required contents of a plan of merger, a plan of interest exchange, a plan of conversion, or a plan of domestication; (n) except in narrow circumstances, restrict the rights of a person other than a member or manager; or (o) provide for indemnification for a member or manager for (i) conduct involving bad faith, intentional misconduct, or a knowing violation of law, (ii) a transaction from which the member or manager derived an improper personal benefit, (iii) an improper distribution of funds, or (iv) a breach of the duty of loyalty or the duty of care.
With respect to fiduciary duties, the New Act rejects the notion that the operating agreement can completely transform an inherently fiduciary relationship into a merely arm’s length association. The New Act, however, gives substantial power to the members to establish the boundaries of the duties of care and loyalty and the obligations of good faith and fair dealing, by drafting these boundaries in the operating agreement.
Because the New Act is a default statute, careful drafting of the operating agreement is imperative.