LLC Attorney Summary
- The Florida LLC operating agreement is one of two essential LLC formation documents.
- The operating agreement serves as a blueprint for LLC operations, including control of the LLC, distribution of profits, and the rights and duties of LLC members and managers.
- The operating agreement can vary any provision of the Florida Revised Limited Liability Company Act other than the non-waivable provisions specified in the Act.
- Because Florida law is unique, each Florida LLC operating agreement form should be drafted to maximize planning opportunities while complying with the specific requirements of Florida law. Generic, one-size-fits-all operating agreements should be avoided.
Every Florida LLC should have an operating agreement. Florida law has unique requirements, and each Florida operating agreement should be drafted with these requirements in mind. Reliance on a generic operating agreement form that was not specifically designed for use in Florida could be disastrous to the LLC.
This article discusses the role of the operating agreement in Florida LLC formation and considerations involved in drafting operating agreements that comply with the unique provisions of the Florida Revised Limited Liability Company Act.
The Role of the Operating Agreement in Florida LLC Formation
Florida LLCs begin their existence with a simple, two-page form is filed with the Division of Corporations of the Florida Department of State. This form—called articles of organization1—is the public face of the LLC. It includes only a handful of provisions designed to identify the LLC and the LLC’s registered agent in the state records. The articles of organization form is discussed in more detail in our article on Florida LLC formation.
The state-provided articles of organization form do little to structure the LLC. It does not specify how profits will be divided, when and whether the LLC should make distributions, who controls the LLC, and the rights and obligations of the LLC owners and managers.
The Florida Revised Limited Liability Company Act assumes that the structure of the LLC—sometimes called internal affairs—will be determined by the LLC operating agreement. The operating agreement serves as a blueprint for LLC operations. Under Florida law, the operating agreement governs:
- Relations among the members as members and between the members and the LLC;
- The rights and duties of managers;
- The activities and affairs of the LLC and the conduct of those activities and affairs; and
- The means and conditions for amending the operating agreement.2
This broad language delegates most of the LLC operations to the operating agreement. As discussed in our article on LLC operating agreements, every LLC needs an operating agreement to provide this internal structure.
Attorney Practice Note: A well-drafted operating agreement should include all of the provisions needed to structure the LLC in a way that matches owner intent and maximizes tax-saving, asset protection, and strategic opportunities. Our LLC Operating Agreement Checklist covers the issues that we consider in all of our Florida LLC operating agreements.
The Relationship of the Operating Agreement to Florida LLC Law
The Florida Revised Limited Liability Company Act defers to the LLC operating agreement. With limited exceptions (discussed below), Florida law is only relevant if the operating agreement does not cover a matter.3 As a general rule, if the operating agreement covers a matter, that settles it. The Florida Revised Limited Liability Company Act provides only fallback provisions in case the owners fail to plan through the operating agreement.
Non-Waivable Provisions of the Florida Revised Limited Liability Company Act
While the Florida Revised Limited Liability Company Act generally defers to the operating agreement, there are a handful of exceptions. These exceptions—called non-waivable provisions—restrict the operating agreement’s ability to vary the default provisions of the Florida Revised Limited Liability Company Act in several areas. A Florida LLC operating agreement may not:
- Vary a limited liability company’s capacity to sue and be sued in its own name;4
- Change the requirement that Florida law governs Florida LLCs;5
- Vary the requirements of Florida law regarding appointment of a registered agent or the requirements to file with the Florida Secretary of State;
- Change the provisions of Florida law that allow third parties to petition a Florida court to enforce a required LLC filing;6
- Eliminate the duty of loyalty or the duty of care (but see below for permitted modifications);7
- Eliminate the obligation of good faith and fair dealing (but the operating agreement may prescribe the standards by which the performance of the obligation is to be measured if the standards are not manifestly unreasonable);8
- Relieve or exonerate a person from liability for conduct involving bad faith, willful or intentional misconduct, or a knowing violation of law;
- Unreasonably restrict the LLC’s duties to keep records and the rights of a member (current or dissociated) or manager to access those records (but the operating agreement may impose reasonable restrictions on the availability and use of information and may define appropriate remedies, including liquidated damages, for a breach of a reasonable restriction on use);9
- Vary the grounds for judicial dissolution (but a deadlock resolution mechanism is not considered a variance);10
- Vary the requirement to wind up a dissolved LLC’s business, activities, and affairs;11
- Unreasonably restrict the right of a member to maintain a direct action against another member, a manager, or the LLC to enforce the member’s rights or to maintain a derivative action to enforce the LLC’s rights;12
- Vary the rules applying to a special litigation committee in a derivative action (but the operating agreement may provide that the LLC may not appoint a special litigation committee, as long as it does not prevent a court from appointing doing so);13
- Vary the right of a member to approve a merger, interest exchange, or conversion;14
- Vary the required contents of a plan of merger, a plan of interest exchange, a plan of conversion, or a plan of domestication;15
- Except as explicitly permitted in the rules that govern operating agreements, restrict the rights under this chapter of a person other than a member or manager;16 or
- Provide for indemnification for a member or manager17 for any of the following:
- Conduct involving bad faith, willful or intentional misconduct, or a knowing violation of law;
- A transaction from which the member or manager derived an improper personal benefit;
- A circumstance under which the member or manager is liable for an improper distribution;18; or
- A breach of fiduciary duties or obligations or the duty of good faith and fair dealing,19 taking into account a permitted restriction, an expansion, or an elimination of such duties and obligations.20
Clarifying the Application of Non-Waivable Provisions
After listing the mandatory (non-waivable) provisions, the statute provides specific rules for a handful of common LLC operating agreement provisions. The operating agreement may:
- Specify the method by which a specific act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified by one or more disinterested and independent persons after full disclosure of all material facts; or
- Change the rules applying to improper distributions so that a distribution is considered proper as long as the LLC’s assets exceed its liabilities.21
Under the Florida Revised Limited Liability Company Act, duty follows responsibility. If the operating agreement relieves a member of a responsibility and assigns to someone else, the operating agreement may eliminate or limit that member’s duty or obligation.22
Attorney Practice Note: As the discussion above indicates, the fiduciary duties of loyalty and care are a primary focus of the non-waivable provisions of the Florida Revised Limited Liability Company Act. There is a reason for that: The existence and scope of fiduciary duties of LLC members and managers is often an issue in LLC litigation. To avoid unnecessary litigation, each Florida LLC operating agreement should clearly address fiduciary duties.
The “Manifestly Unreasonable” Standard
The Florida Revised Limited Liability Company Act also follows the “manifestly unreasonable” approach of the Revised Uniform Limited Liability Company Act (RULLCA). Under this approach, an operating agreement may do any of the following, as long as the provision is not “manifestly unreasonable:”
- Alter or eliminate the aspects of the duty of loyalty;
- Identify specific types or categories of activities that do not violate the duty of loyalty;
- Alter the duty of care (but not to authorize willful or intentional misconduct or a knowing violation of law); or
- Alter or eliminate any other fiduciary duty.23
It is up to a court to decide whether a specific operating agreement provision is “manifestly unreasonable” following the guidelines described in the statute.24 These rules require the court to evaluate reasonableness based on the circumstances existing at the time that the term became part of the operating agreement.25 The court can only invalid the provision if it is “readily apparent” the objective of the term is unreasonable or that the term is an unreasonable way to achieve the objective.26
Attorney Practice Note: While well-intended, the “manifestly unreasonable” standard does little to help LLC attorneys draft Florida operating agreements. In the absence of case law, it is difficult to predict whether a court will consider an operating agreement provision to be “manifestly unreasonable.” Caution is warranted when considering any provision that relies on that standard.
Drafting Operating Agreements to Comply with Florida LLC Law
It is important to draft each Florida operating agreement with the non-waivable provisions in mind. A generic, one-size-fits-all operating agreement form—or an operating agreement designed for use in another state—could be disastrous for the LLC if it does not meet the requirements of Florida law.
- Fla. Stat. § 605.0201(4).
- Fla. Stat. § 605.0105(1).
- Fla. Stat. § 605.0105(2).
- See Fla. Stat. § 605.0109.
- See Fla. Stat. § 605.0104.
- See Fla. Stat. § 605.0204.
- See Fla. Stat. § 605.04091.
- See Fla. Stat. § 605.04091(4).
- See Fla. Stat. § 605.0410.
- See Fla. Stat. § 605.0702.
- See Fla. Stat. § 605.0709.
- See Fla. Stat. §§ 605.0801 – 605.0806.
- See Fla. Stat. § 605.0804.
- SeeFla. Stat. §§ 605.1023(1)(b), 605.1033(1)(b), and 605.1043(1)(b).
- See Fla. Stat. §§ 605.1022, 605.1032, 605.1042, and 605.1052.
- SeeFla. Stat. §§ 605.0106 and 605.0107.
- See Fla. Stat. § 605.0408
- See Fla. Stat. § 605.0406.
- See Fla. Stat. § 605.04091
- Fla. Stat. § 605.0105.
- Fla. Stat. § 605.0105(4)(a). The normal rules also require the LLC to be able to pay any preferential distribution rights to members and transferees. See Fla. Stat. § 605.0405(1)(b).
- Fla. Stat. § 605.0105(4)(b).
- Fla. Stat. § 605.0105(4)(c).
- Fla. Stat. § 605.0105(5).
- Fla. Stat. § 605.0105(5)(a).
- Fla. Stat. § 605.0105(5)(b).