LLCs in Florida (Updated Fall 2008) Professor Marilyn Cane NSU Law 2008 LLCs Chapter 608 Florida Stats State Charter Structural Flexibility Limited Liability Florida LLCs Taxation No Corporate Income Tax at State Level Federal Partnership Taxation or Corporate Taxation choice under “Check the Box” Florida LLCs Fiduciary Duties The managers and managing members of an LLC owe the fiduciary duties of loyalty and care to the LLC and all of its members The LLC operating agreement may not eliminate the duty of loyalty completely and may not unreasonably reduce the duty of care Florida LLCs Distributions The earnings of an LLC may be distributed among the members in any way that the members agree, as set forth in the LLC operating agreement If there is no provision in the operating agreement, profits and losses must be allocated on the basis of the agreed value of the capital contributions made to the LLC by each member, to the extent received by the LLC and not returned to the member. Florida LLCs Formation May have single member LLC, like a sole proprietorship but with limited liability Filing of Articles of Organization with Secretary of State in Tallahassee Operating Agreement is not filed. It is like an owners agreement and by-laws combined Florida LLC vs. S Corp S Corp- not more than 100 shareholders, no more than one class of stock (except voting), no non-resident aliens No such limits on LLC Florida LLCs Deduction of Losses S Corp- Losses deducted only up to amount of shareholders basis in stock plus personal loans LLC owner’s basis includes the member’s proportionate share of LLC liabilities, thus LLC member may be able to deduct higher amount of loss Florida LLCs- Management Member-Managed LLC default rule is management vested in members in proportion to the then current percentage in profits Manager-Managed LLC default rule is that any matter may be decided by manager or a majority of managers Florida LLCs Liability of Members FL ST § 608.701 provides : In any case in which a party seeks to hold the members of a limited liability company personally responsible for the liabilities or alleged improper actions of the limited liability company, the court shall apply the case law which interprets the conditions and circumstances under which the corporate veil of a corporation may be pierced under the law of this state. See Dania Jai-Alai Palace, Inc. v. Sykes, 450 So.2d 1114 (Fla. 1984) NOTE: Only LLCs ( not LPs or LLPs or LLLPs) have this protection directing the courts to corporate case law Florida LLCs - Transferability Whereas stock in a corporation is freely transferable, full membership interest (including management and voting rights ) in LLC is NOT transferable unless all members agree ( like General Partnership) UNLESS otherwise agreed in either the articles of organization or the operating agreement. Address Transferability in Operating Agreement As a threshold issue, the members should determine whether voluntary transfer of membership interests will be permitted and, if so, whether a transferee of a membership interest will have the right to become a member of the LLC or receive only the economic rights of a member, such as the right to receive distributions and allocations of profits and losses. Florida LLCs-Continuity of Life Corporations deemed perpetual Partnerships may be dissolved easily (N.B. RUPA dissociation) LLCs continue unless they expire 1)in period of time or event specified in agreement 2)upon unanimous agreement 3) death or membership termination of last member or 4) court order Florida LLCs-Dissociation Partner in partnership may dissociate at any time for any reason (may be liable for damages for breach of contract, however) Member of LLC may NOT dissociate unless that right is expressly granted by the articles or in the operating agreement Withdrawal of Member A member may withdraw from a limited liability company only at the time or upon the occurrence of an event specified in the articles of organization or operating agreement and in accordance with the articles of organization or operating agreement. Notwithstanding anything to the contrary under applicable law, unless the articles of organization or operating agreement provides otherwise, a member may not resign from a limited liability company prior to the dissolution and winding up of the limited liability company. The articles of organization or operating agreement may provide that a limited liability company interest may not be assigned prior to the dissolution and winding up of the limited liability company Payment Upon Withdrawal of Member Upon withdrawal, a withdrawing member is entitled to receive any distribution to which the withdrawing member is entitled under the articles of organization or operating agreement. If not otherwise provided in the articles of organization and operating agreement, the withdrawing member is entitled to receive, within a reasonable time after withdrawal, the fair value of the withdrawing member's interest in the limited liability company as of the date of resignation based upon the withdrawing member's right to share in distributions from the limited liability company.
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