5 Reasons Why The New Revised Limited Liability Company Act Will Have An Effect On Small Businesses

By Kate Mesic

As a business owner, you know that what you don’t know could hurt you in the long run. Remember ignorance of the law is not a defense.

A prime example is the newly revised law applicable to Florida limited liability companies. The Florida legislature added Chapter 605 to Florida Statutes, replacing Chapter 608, which previously dealt with LLCs.

As of Jan. 1, 2015 the new law applies to all LLCs, whether they were created before 2014 or after. This is why business owners need to pay attention to the changes that the revised LLC Act brings.

Designed in part to help business owners who form LLCs without legal assistance, Florida’s new Revised LLC Act is a more comprehensive law than its predecessor. It also eliminates confusion that was inherent in the old law, and which created a lot of litigation in regards to members’ powers and responsibilities.

Below are some of the changes that could affect you the most as a business owner—particularly in regard to how you structure your company in order to protect your assets, your family and your business.

1) Operating agreements and management of the Company

An LLC can no longer have a managing member. “Member-managed LLC” is now the default management method, which means if you set up an LLC tomorrow, and don’t elect to be a manager-managed LLC, in the eyes of the law you will be classified as member-managed. Similarly, those LLCs that previously had a managing member are now member-managed. So, actions that were unilaterally taken and approved by an LLC’s managing member may now need a review and vote by members. If an LLC does not amend its operating agreement to become “manager-managed” and to endow a particular member with the title and responsibilities of a manager, then each member is allowed to participate in decisions like purchasing real estate, signing contracts or going into business with somebody else. A member could then be entitled to sue the LLC if they have not given their consent to a particular action.

Though the new LLC Act is designed as a default statute, so that companies that are not set up by lawyers have something to fall back to, you can change from the default provisions by amending your operating agreement.

So, you should create an operating agreement if you did not have one previously. Or, update the one that you have to specify the manager’s powers, as well as the procedures for voting or decision making.

When writing your operating agreement, you must also know that you cannot absolve a manager or member of liability in certain situations. Florida Statute 605.0105(3)(g) states, “… an operating agreement may not exonerate a person from liability or conduct involving bad faith, willful, or intentional misconduct, or a knowing violation of a law.”

Overall, Florida’s new Revised LLC Act is more relaxed in that an operating agreement does not need to be a formal document, and could even be an email. It can also take a form beyond oral and written agreement, including implied agreements within a record.

2) Record keeping

The new law also amends provisions related to inaccurately filed information for both “member managed” and “manager managed” LLCs. More specifically, Florida Statute 605.0205 provides that if you do not correct inaccurate information you could be exposed to liability, even if you are a non-active member or minority investor. The statute goes on to state that the operating agreement may provide for a specific person responsible for the accuracy of filings, this way other members will not be held liable.

In changing the law, the legislature has also limited the duties of a registered agent to forwarding process, notice, or demand served upon it to the company, under Florida Statute 605.0113(3). The law also specifies who can receive service of process in the event that no registered agent is present.

In addition, the Act requires the LLC to keep records in its primary place of business. The ability of the member to inspect the records depends on the relevance of the records to the member’s duties within the LLC. The manager and members have access to the same records.

3) Members’ duties

The new law imposes certain standards on the members and managers (Florida Statute 605.04091). It further lays out the fiduciary duty of loyalty and duty of care that the manager owes to the LLC and its members. The members must also refrain from competing with the LLC prior to its dissolution. The members must refrain from negligent, reckless, and unlawful conduct.

It is important to note that the new act makes a distinction from the old law by creating a term “transferable interest.” This allows the member to retain all rights, except for rights to distributions. So, unless the person who got the “transferable interest” becomes a member of the LLC, he or she does not have other rights, such as management or voting. Furthermore, the transfer of ‘transferable interest” will not lead to the dissolution of the LLC.

4) Disassociation

The old LLC Act allowed a member to only disassociate by bankruptcy, dissolution, or the occurrence of an event prescribed in the articles of organization or operating agreement. The new Act provides additional methods of disassociating for members.

Voluntary disassociation by express allows a member to disassociate at any time. If the member goes against the operating agreement and “wrongly” disassociates, that member may be liable for damages caused to the remaining members.

Disassociation by expulsion can occur for two reasons. First, the member can be expelled for reasons provided in the operating agreement or by unanimous consent of other members. Second, the member can be disassociated by a judicial order, if their wrongful behavior adversely and materially affects the company. The disassociated member holds its rights in the LLC, as a transferee only and has no rights to participate in management functions.

5) Dissolution

The new act allows for judicial dissolution when the LLC’s activities are unlawful, the managers or members have acted fraudulently, or if the company is suffering irreparable injuries.

The LLC may petition for reinstatement following its dissolution. If the petition is denied, the LLC may request judicial review of the denial within 30 days. The new act eliminates the waiting period of judicial review and the process of exhausting other possibilities.

Ignorance of the new law is not a viable defense because it applies to your LLC regardless of when it was formed. What you know now could help you later avoid litigation.


Kate Mesic headshot by Agnes LopezKate L. Mesic is the President of Mesiclaw, specializing in commercial collections and criminal defense.

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