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David Toback, Attorney at Law
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Old Ways of Running LLCs Have Changed With New Laws

There is an old car commercial for Oldsmobile, where, in order to tout changes in the vehicle, the saying went “This is Not Your Father’s Oldsmobile.” Well, just like the car, if you plan on forming your own business entities and companies—particularly LLCs—doing it the old way may get you into some trouble, as Florida’s corporate laws related to LLCs have undergone some major changes.

Changes to Operating Agreements

Many people are aware that they need an operating agreement detailing the rights and obligations of the LLC’s members. Many may be under the mistaken assumption that whatever you put in the agreement is binding. After all, it’s your LLC, so you can agree to whatever you want and it’s enforceable, right?

Well, not quite. Old Florida laws used to allow an LLC to agree to almost anything in its governing documents, although certain statutory terms were mandatory. But not as of 2013’s law changes. Now, there are many additional provisions that, even if agreed upon, won’t be enforceable under the law.

Some of the changes have to do with prohibiting an LLC from forgiving or holding harmless members or managers from breaches of their duties to the company, and excusing any incident involving fraud or self-dealing.

LLCs cannot alter an LLC’s ability to sue, or right to be sued, and also don’t allow alteration of an LLC’s duties to keep proper records or of a member’s rights to access those records.

Managing Member Changes

The law also gets rid of “managing members.” Many LLCs have a single “managing member,” who may have been the head of the LLC or had authority to make certain decisions for it. This person is now simply a “manager,” and although it may seem like a semantic difference, failure to change operating documents to reflect the proper wording could lead to big problems.

A “managing member” company could now be interpreted as being “member-managed,” meaning that instead of power being consolidated in one person, the entire membership must vote on certain actions. Thus, the law change could result in the complete opposite of what you were trying to accomplish with your agreements, and how your LLC had been running in the past.

Dissociation of Members

In the past, the entire LLC had to be wound up if a member left, or else the governing documents could provide for a procedure when a member left. Members are now free to leave the LLC. The new laws prevent operating agreements from restricting the ability of a member to leave. A dissociated member still may be entitled to receive distributions from the LLC.

Importantly, dissociated members could compete with your LLC by operating a separate business after leaving yours (while you still have to pay them distributions).

Thus, it is important to have specific language in your operating agreement, and perhaps even separate contracts or agreements, which can limit a former member’s ability to damage your LLC after he or she dissociates.

You shouldn’t attempt to handle business and corporate formations and documents yourself. Law changes have made that risky, and your existing documents may need a second look to make sure they accomplish what you want them to. Contact Tampa business attorney David Toback to discuss your needs.

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