Florida’s Revised Limited Liability Company Act: Part III – The Right to Dissociate From the LLC
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This blog post is the third in a series of posts that will discuss Florida’s Revised Limited Liability Company Act, which was passed into law in June 2013 and is codified in Chapter 605, Florida Statutes. The Revised Act takes effect January 1, 2014 for all LLCs formed after that date. For LLCs formed prior to 2014, the Revised Act becomes mandatory on January 1, 2015. Although much of Florida law governing LLCs remains the same under the Revised Act, there are significant changes that managers and members of LLCs should be aware of and that may require revisions to existing operating agreements. This post focuses on the power of members to dissociate from an LLC under the Revised Act.
Similar to Florida’s previous LLC statutes, the Revised Act is a default statute. This means that if an LLC’s operating agreement is silent on any number of issues, certain provisions of the Revised Act will govern the LLC by default. Moreover, several provisions of the Revised Act are mandatory default provisions, meaning an operating agreement cannot conflict with those default provisions and, if it does, the conflicting clause in the operating agreement is invalid. One such mandatory default provision is a member’s right to dissociate from the LLC. Fla. Stat. § 605.0105(3)(i).
According to the Revised Act, a person has the power to dissociate as a member at any time by withdrawing via “express will,” which means providing notice to the company of the member’s intentions to withdraw. See Fla. Stat. § 605.0601(1); Fla. Stat. § 605.0602(1). Once a person dissociates, that person’s rights to participate as a member in the management and conduct of the LLC’s activities and affairs terminates. Fla. Stat. § 605.0603(1)(a). However, a person’s dissociation as a member does not also discharge that person from a debt, obligation, or other liability to the LLC, or to the other members, which the person incurred while a member. Fla. Stat. § 605.0603(2).
In addition to dissociating by express will, the Revised Act provides other methods through which a member is dissociated. A few of those other methods include, but are not limited to, the following:
- When an event stated in the operating agreement as causing the person’s dissociation occurs. Fla. Stat. § 605.0602(2).
- If the person’s entire interest is transferred in a foreclosure sale under Fla. Stat. 605.0503(5).
- If the person is expelled as a member by the unanimous consent of the other members due to it being unlawful to carry on the company’s activities and affairs with that person as member. Fla. Stat. § 605.0503(5).
- If the person is expelled by judicial order because of wrongful conduct or a material breach of the operating agreement. Fla. Stat. § 605.0503(6).
A person also has the absolute right to dissociate “wrongfully” from the LLC. According to the Revised Act, a person’s dissociation as a member is wrongful if it is in breach of an express provision of the operating agreement. Fla. Stat. § 605.0601(2)(a). A person’s dissociation is also wrongful if it occurs before the completion of the winding up of the company and the person either: 1) withdraws as a member by express will; 2) is expelled as a member by judicial order; 3) becomes a debtor in bankruptcy; 4) executes an assignment for the benefit of creditors; or 5) has a trustee, receiver, or liquidator appointed over his or her property. See Fla. Stat. § 605.0601(2); Fla. Stat. § 605.0602(8). Although a person has the absolute right to dissociate wrongfully, a person who wrongfully dissociates as a member is liable to the LLC and to its other members for any damages caused by the dissociation. That liability is in addition to any debt, obligation, or other liability that the member who wrongfully dissociates may have previously incurred. Fla. Stat. § 605.0601(3).