New LLC Law Takes Effect
Part 1: Elimination of Managing Members
The Florida Limited Liability Company Act was repealed and replaced with an entirely new law that applies to all Florida LLCs effective January 1, 2015. Much of the old LLC statute (Chapter 608) was restated in the new LLC statute (Chapter 605) with some important differences. Now that the Division of Corporations is sending out renewal notices, I thought the first I should tell you about is the elimination of the so-called “Managing Member”. As part of the Florida Bar task force that drafted the new LLC Act, I can tell you that even the most seasoned practitioners disagreed on what exactly was a Managing Member. As such, the term was stricken from the law and now persons involved in LLCs must either be Members, Managers or both.
Titles are very important when it comes to LLCs, because the obligations and authority of a Member and Manager can be very different. They also vary, depending on whether an LLC is Member-Managed or Manager-Managed as if it wasn’t complicated enough. This can have internal, legal and economic consequences with respect to the relative rights and obligations of operators, partners or investors in an LLC, and externally it can affect whether third parties contracting with an LLC must, may or can’t rely on a certain person as being authorized to represent the LLC (more about that later).
So where does the new law leave Managing Members? In some cases, they are treated like any other Member, but under the right circumstances they may be treated like a Manager. This may be completely inconsistent with the way your LLC was designed to work (or works by default) because the “Managing Member” could end up having virtually total control of the LLC on one extreme or just as much say as any other Member on the other extreme. Accordingly, LLCs with Managing Members need to figure out how their LLC’s legal structure must be updated to put everything in order, preferably before going on the record by filing the next annual report disclosing who the Members or Managers are.
As always, if we can be of any assistance with LLCs or any other tax or legal issue, please don’t hesitate to let us know.