Limited Liability Company Nonwaivable Provisions

Florida's Revised Limited Liability Company Act took effect on January 1 of this year for all LLCs formed or registered to do business in Florida on or after that date. The Revised Act becomes applicable to all pre-existing LLCs on January 1 of next year. There has been much discussion about how the new Act changes the LLC landscape. The vast majority of changes affect the Act's "default" provisions—i.e. provisions of the Act that would only come into play if an LLC has not provided for a particular matter in its operating agreement. For LLCs with well-drafted operating agreements, this means implementation of the Revised Act will have little or no effect on how the LLC operates. However, the Revised Act did put into place 17 "nonwaivable provisions," which prohibit LLCs from including conflicting provisions in their operating agreements. The following are a few of the nonwaivable provisions:

1. The LLC's ability to limit liability and indemnify members and managers is limited in certain cases;
2. LLCs are prohibited from waiving judicial dissolution;
3. An LLC may not unreasonably restrict a member from maintaining a derivative action or bringing a direct legal action against the LLC, another member, or any manager;
4. An LLC may not unreasonably restrict rights and duties related to inspection of records;
5. An LLC may not vary the power of a member to dissociate as provided in the Act; and
6. An LLC may not vary the right of a member to approve a merger, interest exchange, or conversion as provided in the Act.

As we approach full implementation of the Revised Act in the coming year, LLCs are well advised to have their operating agreements reviewed by corporate counsel to both ensure that the nonwaivable provisions are not being violated (whether in the operating agreement or in practice), and also to confirm there are no "gaps" to be filled by default provisions that are out of sync with members' objectives.