Florida Trust & Probate Attorneys Blog
By Phillip B. Rarick, Miami Asset Protection Attorney
Florida’s new LLC statute that became effective this past January 1, 2015 made fundamental changes in the state’s limited liability company laws. These changes are so basic that we recommend that you should have a Miami asset protection attorney review all LLC’s created prior to 2015. A key provision of the new law states that an LLC will be Member Managed unless the Operating Agreement or Articles of Organization expressly provide otherwise. F.S. § 605.0407(1). The new law drives home four Take-Away Points:
- Every LLC should have an Operating Agreement. It may be tempting to use an on-line service to create an LLC. This service will likely file a simple 1-3 page Articles of Organization for you and send you a corporate book and seal. Under the new law, the default provision will mean you have established a Member Managed LLC and it may be construed as a single member LLC unless you clearly provide otherwise in the Operating Agreement or Articles of Organization. In Florida, we never recommend Member Managed LLC’s and you usually want to avoid a single member LLC. The Operating Agreement is the true “control center” of your LLC: it controls management, ownership, administration, and if properly drafted and structured, has strong provisions to make it difficult for creditors to attack. An LLC without an Operating Agreement is most likely a weak entity providing little or no asset protection and possible control issues for the primary investor.
- Most LLC’s should be Manager-Managed. If the LLC is not Manager-Managed, and fails to have an operating agreement that serves the interests of the controlling investors, it is possible that persons who own less than 50% of the Membership interests, but previously controlled the LLC as a Managing Member, will now need to secure the consent of the other members regarding minor day-to-day administrative matters. Note: as mentioned above, under the default provisions of the new law, the LLC will be a Member-Managed LLC unless otherwise provided in the Operating Agreement or Articles of Organization. For an excellent overview of the new LLC law see Kenneth J. Crotty’s article, Avoiding the Cinderlla Effect – Don’t Let Your LLC Turn Into A Pumpkin On January 1, 2015, published in the Thursday Report by Gassman & Associates.
- Divide the Management Powers into two positions: Administrative Manager and Executive Manager. You want your LLC operating agreement to provide robust protection. One key strategy to consider is to divide the management powers into the Administrative Manager, who has full authority to make all fundamental decisions for the LLC except only two: the power to make distributions and the power to dissolve the LLC. These powers are reserved for the Executive Manager. A creditor trying to attack the LLC will be limited to a charging order as their exclusive remedy. If the Administrative Manager has no power of distribution, the creditor will need to get jurisdiction over the Executive Manager in order to have a charging order of any value.
- Make the Operating Agreement an Executory Contract: Include Ehmann Provisions. Thomas Wells, a preeminent tax attorney in Florida, writes that it is important for the operating agreement to be an executory contract because if one of the members is subject to bankruptcy the bankruptcy court cannot disregard the terms of the agreement and state law that provide asset protection benefits for the debtor member in light of the case In re Ehmann, 319 B.R. 200 (Bankr. D. Ariz. 2005). The Ehmann provisions recommended by Wells are intended to make clear that the Operating Agreement constitutes an executory contract with respect to all membership interests. See treatise, Asset Protection In Florida, Ch. 4-46, p. 4-45, Third Ed, published by the Florida Bar.
For more information, contact Phil Rarick, a Miami asset protection attorney, at (305) 556-5209 or info@raricklaw.com.
Special Note
The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an experienced Miami asset protection attorney. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.