In this post I want to discuss one of the significant clarifications that The Florida Revised Limited Liability Act (“the Act”) provides regarding how LLC’s are to be managed. In the definitions section of the Act, which appears in Section 605.01012 and in the Management section of the Act which appears in Section 605.0407 the Act provides two types of LLC possibilities:
- The “Manager-managed liability company” which is an entity managed by one or more managers who have the exclusive right to decide the affairs and activities or the company.
- The “Member-managed liability company” where the management and conduct of the company are vested in the members of the company.
Section 605.0102(41) further states that the Member-managed liability company is NOT a manager managed company. Well . . . obviously . . . we would think to ourselves. But this distinction is made for a reason.
Although manager-managed and member-managed LLCs have long been the two options under Florida law, by virtue of the Articles of Organization form provided by the Florida Department of State Division of Corporations (“Department”) used to register limited liability companies, a large number of Florida limited liability companies exist in a type of hybrid which I will call the “Managing Member managed entity.” The printable form provided by the Department which can be found by clicking here and the online form which can be found by clicking here require that either a “Manager” (MGR) or a “Managing Member” (MGRM) be identified. (Note that the annual report form also provides the same choices.) The option of identifying a “Managing Member” is problematic because it suggests to third parties dealing with the LLC and possibly to other members of the LLC, that the person or entity named as a “Managing Member” may have superior management authority to the rest of the members, in short, this is the essence of a “Manager.”
If the LLC uses an operating agreement and the operating agreement clearly designates that one or more members shall be “Managing Members” with the exclusive right to manage the affairs of the LLC, this gives the world and the members themselves evidence of intent, albeit still outside the intended statutory context of having management shared among all the members or the named manager(s).
But if there is no operating agreement or other writing that reveals the intent of the members, however, the use of the term “Managing Member” in the registration form creates a risk of disagreement among members who might believe that they have equal management authority under the statutory framework even though they were not specifically named in the registration documents. It also creates the possibility of confusion for third parties having to deal with the LLC and not knowing for sure whether someone identified as a “manager” has the same or different authority than a “managing member.”
This is why we have the explicit and seeming redundant statement in Section 605.0102(41) distinguishing that a member-managed limited liability company is not a manager-managed limited liability company. To further help correct this hybrid problem, the term “Managing Member” will no longer be used on the Articles of Organization form after January 1, 2014. The Annual Report form will also be revised to offer either the selection and identification of at least one member or one manager, but not a managing member.