Florida’s Revised Limited Liability Company Act: Part IV – Indemnification of Members and Managers
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This blog post is the fourth 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 changes to Florida law concerning the indemnification of members and managers of LLCs.
Section 605.0408, Florida Statutes, does allow for the indemnification of members and managers of LLCs in certain circumstances. For example, an LLC may indemnify and hold harmless a person with respect to a claim or demand made against him or her for a debt, obligation, or other liability incurred in that person’s capacity as a member or manager. Fla. Stat. § 605.0408(2). As part of this indemnification, the LLC may advance reasonable expenses, including attorneys’ fees and costs, to the person against whom a claim or demand was made for his or her actions as a member or manager. Fla. Stat. § 605.0408(3). However, the person receiving this advance must promise to repay the LLC in the event he or she is found not to be entitled to indemnification. Id.
Section 605.0105, Florida Statutes, provides a list of things that an LLC’s operating agreement may not do, one of which is to provide indemnification for a member or manager for certain specific actions. The actions for which a member or manager cannot receive indemnification include the following:
- Conduct involving bad faith, willful or intentional misconduct, or a knowing violation of the law. Fla. Stat. § 605.0105(3)(q)1.
- A transaction from which the member or manager derived an improper personal benefit. Fla. Stat. § 605.0105(3)(q)2.
- A circumstance under which there is liability for improper distributions. Fla. Stat. § 605.0105(3)(q)3.
- A breach of duties or obligations under the standards of conduct for members and managers as described in Section 605.04091, Florida Statutes. Fla. Stat. § 605.0105(3)(q)4.
In addition to providing indemnification, an LLC may also reimburse a member or manager for expenses incurred in that person’s activities undertaken on behalf of the company in the ordinary course of the LLC’s affairs. Fla. Stat. § 605.0408(1). Furthermore, the LLC can purchase and maintain insurance for a member or manager to cover any claims made against, or liability incurred, by him or her while acting for the LLC. Fla. Stat. § 605.0408(4). In summary, the Revised Act allows for the LLC to indemnify and reimburse its members and managers in most situations so long as the manager or member does not violate the Revised Act and/or breach the standard of duty each manager and member owes to the LLC and to one another.