If you have an LLC in the state of Florida or will be registering one this year or in the future, you have probably heard about the numerous changes in Florida’s New LLC Act. Consult an experienced Fort Lauderdale business acquisition & sales attorney at Schecter Law today to learn more about how these changes will affect you and your business.
Fairness standards that are used to determine whether or not a contract is fair and reasonable to an LLC are clarified in the new Florida LLC act. The Existing Act did not provide any standards to determine if a transaction was considered fair and reasonable. The new changes offer more guidance in this area. Under these new provisions, a transaction will generally be considered fair if it is beneficial to the LLC and its members as a whole.
An operating agreement is an agreement adopted by the members of a limited liability company that lays out the intricacies of how the company will be run, and furthermore structures most of the important functional and financial decisions that will be required. Although Florida law does not require that a limited liability company have an operating agreement, the provisions of the Florida Limited Liability Company Act, codified at Florida Statutes Chapter 608 (the “Act”), may not necessarily cover every scenario which may arise throughout the course of a company’s existence. Accordingly, to help ensure the seamless functioning of any business, it is in the company’s best interests to have a written operating agreement in place.
Florida law provides that an operating agreement may be oral or in writing. If the operating agreement includes both oral and written provisions, any inconsistency will be resolved in favor of the written provisions. An operating agreement can be made at any time prior to or after formation of the limited liability company. To the extent the operating agreement does otherwise provide, the Act governs relations among the members, managers, and limited liability company. Florida Statutes section 608.423(1) (2012).
Pursuant to Florida law, the operating agreement may not: (1) unreasonably restrict a right to information or access to records as set forth in section 608.4101; (2) eliminate the duty of loyalty set forth in section 608.4225 (but the operating agreement may (a) identify specific types or categories of activities that do not violate the duty of loyalty, so long as not unreasonable; and (b) specify the number or percentage of members or disinterested managers that may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty); (3) unreasonably reduce the duty of care provided for under section 608.4225; (4) eliminate the obligation of good faith and fair dealing under section 608.4225 (but the operating agreement may determine the standards by which the performance of the obligation is to be measured, if the standards are not unreasonable); (5) vary the requirement to wind up the limited liability company’s business in a case specified under the Act; or (6) restrict rights of a person, other than a manager, member, or transferee of a member’s distributional interest, under the Act. Florida Statutes section 608.423(2) (2012).
A properly drafted operating agreement will contain provisions that specify the internal operations of the limited liability company as well as the members’ rights and obligations to one another and the company. The operating agreement is important in a number of respects, but perhaps most importantly it may help to prevent later disputes among the members, managers and the company, if their respective rights and obligations are clearly set forth in a written agreement. By preventing future disputes, a company can prevent the expense of needless attorneys’ fees and court costs. However, to ensure that the operating agreement’s provisions are tailored to the company’s business and the members’ expectations, it is advisable to use the services of a lawyer to prepare the operating agreement.