Midnight December 31, 2013, the ball dropped, fireworks went off, and people rejoiced. Why were they so happy? Because that moment in time marked the end of Florida’s Limited Liability Company Act and sounded the opening bell for the Revised LLC Act for companies formed after January 1, 2014.
If you own or manage an LLC that existed before January 1, 2014, you can breathe a sigh of relief because you aren’t affected, but you will be. January 1, 2015 is when the new law applies to you, whether you like it or not.
So, you just formed an LLC in Florida and have a great business idea that is going to make a lot of profit in 2014. What are some of the big changes that will impact your new LLC and what are you supposed to do? Probably the biggest one that affects you is the management; the Revised Act serves as a default or fallback in the event you don’t have an operating agreement. So let’s assume you haven’t gotten with me yet to prepare that document and you have a partner or a few investors. Under the new Act, they will now be deemed more than just silent investors, they are members with many, many rights that you might not have intended they have. These members can also sell and transfer their interest under the new Act, meaning you may have new “partners” that you didn’t intend and don’t want as partners. What can you do about it if you don’t have a proper operating agreement prepared by a skilled and qualified business lawyer . . . nothing. The new default is member managed. If you want to have the business run by a manager or managers, that has to be in your operating agreement. No operating agreement, no controlling manager.
Also, the business has to keep certain records and the members have rights to see them. Thus, by saving money not getting an operating agreement, you cost the company more in responding to records requests or even lawsuits for records that you didn’t think the “silent investors” should get, not realizing they are full-fledged members because you have no operating agreement.
Arguably, not having proper documents, like an operating agreement or contracts, may even be a breach of a manager’s fiduciary responsibilities to the company. The cost of having the Law Office of David Steinfeld prepare these documents, for example, is negligible as compared to the cost of lawsuits by members for mismanagement for not having them. Which also highlights a “safe harbor” in the new law that allows business owners to protect and insulate themselves from liability in most cases by obtaining opinion letters from professionals, such as lawyers and CPAs. What’s the cost of these letters – much less than not getting them, that is for certain.
Business owners put a lot of time, energy, and money into their business to build and grow it. It only makes sense to protect it with proper internal documents, like operating agreements, and documents for external use, such as contracts, non-disclosure agreement, and non-compete agreements. Failing to invest in protecting your business can literally bring down the whole house of cards.
If you are a single-member LLC, if someone gets a judgment against you, the owner, they can literally take away your ownership and they own the company and all its assets. Does that make you a more attractive target? How can your business afford to defend an expensive lawsuit, even if you did nothing wrong? All good questions to ask yourself when looking forward to 2014 and realizing now is the time to have the Law Office of David Steinfeld or any other Board Certified expert in business litigation law sit down with you, review your documents, and advise you on your options for doing things the right way under Florida’s Revised Limited Liability Company Act.
For more information please visit http://davidsteinfeld.com