Last year, Florida overhauled its limited liability company laws. These changes were needed and welcomed – the Legislature unanimously passed new Chapter 605 of the Florida Statutes. But the new law is complex, and staggered effective dates add a layer of potential confusion. Now, more than ever, LLCs should turn to competent business counsel to help them navigate these uncharted waters.
Power to Dissociate Under the New Act
One of the significant changes to the law is the power of an LLC member to “dissociate”; that is, to resign or withdraw.
Under prior law, this issue was fairly straightforward: a member of an LLC could not dissociate before dissolution and winding up unless the governing documents expressly allowed such a dissociation.
Under new Chapter 605, an LLC member “… has the power to dissociate as a member at any time, rightfully or wrongfully, by withdrawing as a member by express will under s. 605.0602(1).” This new power is mandatory; it cannot be waived or altered by agreement. Section 605.0601(1).
There is an interesting twist, though: the governing documents can provide that any dissociation is a breach of the governing documents – and the act is, consequently, “wrongful.” Section 605.0601(2). In that case, the LLC member is liable to the LLC and the other members for damages caused by the dissociation. A member can leave, but he or she must pay for the privilege.
Additional Aspects of Dissociation
This new, non-waivable right to dissociate is significant in many respects beyond the mere permission for an LLC member to withdraw at any time before dissolution.
For example, under the old law, an LLC member has fiduciary duties of loyalty and care, and that member may not operate a business in competition with the LLC.
Under the new law, when a member withdraws, these fiduciary duties terminate along with the right to participate in management of the business. But the member keeps the right to receive distributions. So, unless there is carefully crafted language in the governing documents, a dissociated member can start a competing business while remaining entitled to receive distributions.
Such new non-compete and non-solicitation agreements are among the many items that should be included in the operating agreements of new LLC’s and added (by January 1, 2015) to those of existing firms. Another example is specifying whether and under what terms the LLC or remaining members can purchase the LLC interest of the withdrawing member.
Among the many changes in new Chapter 605 are the complicated provisions relating to a member’s power to dissociate and the consequences attendant to that action. Counsel can greatly assist right now in drafting the operating agreements of new LLCs to conform to this new law, and making necessary changes to the organizing documents of existing LLCs before January 1, 2015.
Chapter 605 of Florida Statutes; sections 605.0105; 605.0108; 605.0201; 605.0601; 605;0602; 605.0603