Florida’s new LLC Act (“New LLC Act”), which was adopted in 2013 and significantly re-wrote the prior Florida LLC statute, created a real “buzz” in the legal community. Of particular concern to many practitioners were provisions of the New LLC Act which allow a member of a Florida LLC to “dissociate” (i.e., withdraw) from the LLC at any time in which event the dissociating member will continue to receive distributions from the LLC. Under the New LLC Act, this right of dissociation cannot be taken away from the member.
Under prior law, a member could not withdraw from the LLC prior to its dissolution or winding up unless the operating agreement expressly gave the member that right. In addition, under prior law, the withdrawing member was entitled to receive from the LLC an amount equal to the fair value of the withdrawing member’s interest in the LLC, unless the operating agreement provided a different distribution right.
A prior blog dated September 24, 2014, addressed the “dissociation” provisions of the New LLC Act and, in particular, discussed certain issues and uncertainties raised by these new provisions allowing a member to dissociate from an LLC. That was followed up by another blog dated October 8, 2014 which discussed certain income and estate tax issues created by the new “dissociation” provisions of the New LLC Act.
Since the enactment of the New LLC Act, there has been significant opposition to the new provision prohibiting a Florida LLC’s operating agreement from varying and/or eliminating the power of a person to dissociate from the LLC. Of all of the changes made by the New LLC Act, this provision has drawn the largest criticism from practitioners.
Last month, the Florida Legislature passed a “glitch” bill (“Glitch Bill”) which includes various changes to the New LLC Act designed to “fix” the New LLC Act. One of the changes included in this Glitch Bill is the elimination, effective as of July 1, 2015, of the provision in the New LLC Act which precludes a Florida LLC’s operating agreement from varying the power of a person to dissociate from the LLC. As of the date of this blog, the Glitch Bill has not yet been sent to or signed into law by the Governor of Florida.
Assuming the Glitch Bill is signed into law by the Governor, consideration will need to be given as to whether an operating agreement for an existing Florida LLC should be amended, effective as of July 1, 2015, to prohibit its members from withdrawing from that LLC.m.