Limited Liability Company
LLC stands for Limited Liability Company. Forming an LLC is the simplest way of structuring your business to provide personal liability protection. That means your personal assets are protected if your business is sued.
When a business is structured as an LLC, it becomes its own legal entity. The LLC is responsible for its debts and lawsuits, not the owners.
The owners of an LLC are referred to as members. An LLC can have one owner (single member LLC) or multiple owners (multi-member LLC).
LLCs have much to commend them. LLCs are gaining broad acceptance among venture capitalists, private equity groups and the broader investment community. Unlike corporations, LLCs offer a flexible management structure and limited liability for owners. They also offer “pass-through taxation” — that is, they are taxed like sole proprietorships or partnerships, with income flowing directly to the members. And they offer the same limited liability protections as corporations. Perhaps most importantly, since the late 1990s, LLCs have been exempt from Florida’s corporate income tax. That exemption coupled with their flexibility has led directly to their explosive growth.
So popular are they that Florida now has more LLCs than corporations. As of October, 2014 794,291 LLCs were active in the state, versus 723,796 corporations. Since 2008, more new LLCs than corporations have formed in Florida each year. In 2013, 178,565 LLCs were formed in Florida, versus 102,305 corporations. Consequently, LLCs’ supremacy in number grows by the month.
There have been some changes made to laws in Florida, in reference to LLC's. Some of the changes in the new act were to eliminate ambiguities and to lessen litigation risk for conscientious LLCs. Among the highlights:
- The number of “nonwaivable operating agreement provisions” — or, if you will, LLC no-no’s — has increased from six to 17. These 17 nonwaivable provisions will not be enforced in a court of law even if they are written in black and white in a signed LLC operating agreement. Many LLC operating agreements drafted before the new act was enacted might very well include sections that no longer can apply.
- The new act completely abolishes the concept of “managing-members” in Florida. All LLCs in Florida are either member-managed (more like a general partnership, where each member might have an equal vote on company affairs) or manager-managed (like a corporation, where the members elect one or more managers, who can also be members, and those managers control the company’s affairs). Under Florida’s prior LLC laws, an LLC that was member-managed (i.e. managed by its members, as opposed to managers) could choose to elect one or more members as "managing-members" and only those managing-members would have special rights to control the LLC. With the new act abolishing that concept, if an LLC today has a “managing-member,” then come Jan. 1 that managing-member will lose any special status and become just another member along with the other members. This issue affects who has the power to act for the LLC, such as executing contracts and borrowing money.
- LLCs have always had limitations on when a manager or member can be indemnified, but the new act adds more limitations. For example, with the new law, an LLC cannot indemnify a manager or member for bad faith, willful or intentional misconduct, or a knowing violation of the law. This includes not just taking money from the till without telling your other members, but competing with your own company in the same business by forming another one and soliciting business for it, or usurping business opportunities for yourself rather than bringing them into the LLC. Under the new act, a manager or member can be held personally liable for violating these provisions.
- If you make or allow others to make an inaccurate filing with the state, you can be personally liable. For example, if a person or company enters into a contract with an LLC believing that you are the only manager based upon inaccurate filings with the state, when there are actually other managers whose approval is required to obligate the LLC, you can be personally liable, and the contract might be invalidated.ell and lose strength. Larger joists, smaller joist-spacing, and thicker subflooring can reduce floor flexing and sagging.
- The number of LLC actions which triggers appraisal rights — a right of a member to cause the LLC to purchase its interest — has increased from two to eight. This is more in line with Florida’s corporate laws.
- The new act authorizes LLCs to make new kinds of filings with the state that will become public record. An LLC can now file a statement of authority, which clarifies that certain persons have, or do not have, authority to take certain actions on behalf of the LLC. A person who is granted authority in a statement of authority can file a statement of denial, publicly refusing such authority. Members who dissociate from an LLC can file a statement of dissociation to put the world on notice. If a person ceases to be a manager of an LLC, they can now file a statement of resignation with the state.
Lenders should also be aware of the new act changes. It is now more important for lenders to review a borrower LLC’s operating agreement. The new act allows an LLC to condition any amendments to its operating agreement on the approval of a third party, such as a lender. It also permits a person to be a member of an LLC even if that person has no right to share in any profits or distributions. Under the new act, a lender or creditor can no longer request a court to judicially dissolve an LLC. The new act also adds a method for a dissolving LLC to dispose of unknown claims, similar to what was added to Florida’s corporate laws years ago.
The new act includes many other changes that affect an LLC’s internal governance and relationships with its members. Some of the changes in the new act are designed to make sure that all LLC members and managers remain honest and transparent in their dealings with their partners and with those with whom they do business.
While the new act may seem complicated, its intent is to simplify and modernize. It was drafted as a joint effort of the Florida Bar’s Business Law Section, Tax Section and Real Property, Probate and Trust Law Section. Many provisions of the old LLC act were kept intact, but the provisions that are new or were revised are substantial. It all comes down to common sense, decency and reasonable vigilance — in short, doing the right thing.