NEW FLORIDA LLC LAWS MAY AFFECT YOUR COMPANY
Effective January 1, 2015 Florida decided to revise the Limited Liability Company Act (let’s call it “the New Act”). This new and improved version of the New Act is to help facilitate the use of the Limited Liability Companies, often referred to as “LLC”.
LLCs have become the most popular entity choice in the state of Florida. In fact, it is becoming more popular than corporations. The trend indicates that it will continue to be that way. Florida has more LLCs than any State in the nation including Delaware and it is regularly used for Real Estate purposes. It is important to understand the New Act and how it will affect newly formed LLCs and existing LLCs.
Authority is the power given to an officer or agent of an entity to act on behalf of that entity. Prior to the New Act the names given those parties in authority were either “Manager-Managed” or “Member Managed”. The articles of organization outline, for the general public, the roles that are played by individuals who have authority to act on behalf of the LLC. Typically, you would have an LLC, which is either managed by members (Member Managed) or managed by managers (Manager Managed). Depending on the designation, it only determines who has the right to act on behalf of the LLC it does not disclose who owns the LLC. The New Act makes it clear who has the power to act in what manner depending on the designation chosen. This is something that the prior act did not do.
In the past, it was difficult for third parties to know who had the right to bind or be made a responsible party to act/pay. In order to simplify this process an LLC can now issue a “statement of authority” which is simply a written declaration that the named individuals have the power to act on behalf of the LLC. This statement can inform the public on whether or not the people named in this document can conduct a real estate transaction or not. This is particularly important for those individuals using the LLC for real estate purposes.
In real estate matters, the statement of authority is a key role because it helps parties that are relying on the public records to conduct the transactions. What that means is that most people do not know who has the right or power to make decisions on behalf an LLC. What these individuals are able to do is go on the Department of State (Division of Corporations – Florida Department of State ) to verify authority. As an owner of an LLC this is important because if a third party relies on statements made by this person who claims to have power to make the LLC responsible then you may be stuck in a transaction you never intended to be involved in. Imagine having to pay a loan for someone else. This will help avoid this from occurring in the future if used properly.
There are so many changes made for this particular agreement that it would take at least three pages to explain some of the changes.
An operating agreement is a contract that sets outs the rights, duties and liabilities to the parties. The New Act has made strides to clean up the language so that the intentions are clear as to what those rights, duties and liabilities are. There are so many changes made for this particular agreement that it would take at least three pages to explain some of the changes. However, it is good to note that this contract basically states how the LLC will conduct business. Who has the right and power to act on behalf of the LLC is spelled out in this document. This document will further set rules as to how to, add or disassociate members or managers, who can receive a salary, who can change the LLC rules, and how much liability each member or manager may have. This is, in my opinion, the most important document to have.
Finally, a majority of individuals have chosen an LLC to conduct business, specifically for the protection against them individually. If you have an LLC that is made up of a multimember LLC and one of the members is sued individually from a personal creditor then that creditor is unable to take any membership interest. However, if you have a single member LLC then the creditor may have the right to come and take any or all transferrable interest of the LLC. What this means is that as a single member owned LLC you may lose the LLC altogether.
The creation of Chapter 605 of the Florida Statutes has made significant changes. Some of the existing LLCs may consider revisiting their existing documents to make sure their intentions are accurately reflected. If not then this LLCs may find themselves in costly litigation or even worse may lose the protection they are seeking to have.
It is important when choosing a business entity to understand the ins and outs of the entity of choice.
