On June 14, 2013, Governor Rick Scott signed the Revised Limited Liability Company Act (the “Act”), which makes substantial changes to the existing law governing limited liability companies formed in Florida.  The Act is modeled after the Revised Uniform Limited Liability Company Act (the “Uniform Act”) that was created in 2006 by the National Conference of Commissioners on Uniform State Laws.  However, Florida’s bill diverges from the Uniform Act in certain respects in response to unique issues facing Florida’s business community.  The Act will immediately apply to all limited liability companies formed in Florida after January 1, 2014, and will apply to all Florida limited liability companies after January 1, 2015 regardless of their date of creation.  Limited liability companies formed prior to January 1, 2014 may elect to be governed by the Act beginning on January 1, 2014.

Limited liability companies have become an increasingly popular business structure because of management flexibility, pass-through taxation, and limited liability for their members.  While the Act leaves many existing provisions governing limited liability companies untouched, many significant changes were made.  Some important changes include:

• Expansion of the list of non-waivable default rules that cannot be superseded by an operating agreement. For example, the Act precludes an operating agreement from providing indemnification for members who commit certain wrongful acts.

• Provision for a statement of authority to be filed with the state, which provides constructive notice of the individuals who have authority to bind the company contractually.  Historically, any member of a limited liability company was considered to have authority to bind the company absent a contrary provision in the operating agreement.  This new change serves to protect a company from unwanted liabilities by allowing the company to limit the power of particular managers or members to bind the company.

• No acknowledgement of the “managing member” structure.  Limited liability companies must now be member-managed or manager-managed.  Any limited liability company with a “managing member” will be considered a member-managed company, and the former “managing member” will not be entitled to compensation unless specifically provided for in the operating agreement.

• Voting requirements for members.  For example, the Act requires a unanimous vote by all members in order to amend the operating agreement or articles of organization of a member-managed limited liability company.  Additionally, for manager-managed limited liability companies, a majority-in-interest of all members must approve any action outside of the ordinary course of business unless the operating agreement states otherwise.  This includes certain mergers and acquisitions.

• Members are now allowed to dissociate at any time by withdrawing by express will.  Any dissociated member, however, will be unable to participate in the company’s management.  If a member wrongfully dissociates from the company by violating the operating agreement, among other things, the company could be able to seek damages from the member.  Additionally, several new causes for allowable dissociation have been added to the existing privileges.

• Specific procedures for service of process on a limited liability company.

• If a member demand against the company would be futile, or irreparable injury to the company would result by waiting for members or managers to bring an action, the Act now authorizes a single member to bring a derivative action. The Act also addresses the appointment of special litigation committees.

• Modification of the statutory appraisal rights of members, including additional events which trigger such appraisal rights.

• Judicial dissolution if a petitioning member can demonstrate that the company is engaged in illegal activity or that injury is being sustained by the company or its members due to misappropriation or wasting of funds.  Judicial dissolution is also now available in the event of a deadlock between managers or members that threatens to cause irreparable harm to the company.  However, the Act dispenses with the ability of a creditor to bring an action for judicial dissolution because the creditor has an unsatisfied judgment and the company is insolvent.

• Provisions relating to mergers, interest exchanges, and domestication.  The rules regarding exchanges and mergers are far more extensive in the Act than in the current law.  The Act also permits interest exchanges and allows foreign entities to form a limited liability company in Florida while continuing its existence in the foreign jurisdiction.

Notably, the Act does not allow for “shelf” limited liability companies or “series” limited liability companies.  A “shelf” limited liability company is an inactive company that is “put on the shelf” to age.  Historically, shelf companies have been sold to individuals who do not want to form new business entities, or who hope to raise capital by seeking investments or loans through older, more established companies.  However, “shelf” limited liability companies have marginal utility due to the ease of forming Florida limited liability companies and the ease of discovering “shelf” status during due diligence.  A “series” limited liability company is a structure by which a single company may be divided into sub-companies that have separate assets and liabilities.  The “series” limited liability company has been adopted by a minority of the states, including Delaware.

Individuals who wish to form and operate a limited liability company under the previous law should form the company on or prior to December 31, 2013 in order to take advantage of the existing law through December 31, 2014.  Individuals forming limited liability companies should consult with legal counsel to understand the impact of the Act on the company’s governance documents and operations.  Managers and members of existing limited liability companies should familiarize themselves with the provisions of the Act and consult with legal counsel in order to ensure that their company complies with the Act and to ascertain whether the company should elect treatment under the Act prior to January 1, 2015.

Adam Lewis, summer associate, also contributed to this article.