What is a Business Divorce?

Last month, I wrote about the not so odd couple – business divorce. In continuing my educational efforts and with the hope we can help folks in business avoid some of the most difficult issues faced when breaking up with a business partner, I am continuing my blog series on Business Divorce….

Business Divorce comes in many forms but has one common characteristic — the owners are at odds, or in agreement, and want or need to attend to the separation of their business interests. The typical reasons include, but are not limited to:

  1. Generational transitions;
  2. Owners are deadlocked on a material matter preventing the business from moving forward;
  3. The owners have different visions for the future;
  4. One or more owners needs or wants to cash out;
  5. A partner has become disabled or divorces and there are no contractual provisions which are triggered;
  6. One of the owners of a business is divorcing or separating from his or her spouse or life partner, which triggers one or more clauses in governance documents of a company;
  7. An owner becomes a debtor in a bankruptcy;
  8. An owner has committed fraud or has taken corporate assets as their own without the consent of other owners;
  9. An owner manager has committed waste;
  10. An owner is no longer contributing or supporting the business as part of management or financially.

When these matters come to me as a lawyer, I still deploy my mediator skills to seek an amicable resolution whenever possible. As a mediator, I employ my extensive knowledge of business law and my creative energy to find middle ground that brings the matter to resolution. As an attorney and mediator, I look to the governing documents (Bylaws, operating agreements, partnership agreements, shareholder agreements, actions by the Board and Management …. ) and governing law to advise my clients and to navigate the often treacherous waters.

I am often surprised that lawyers and clients have failed to address some of these items up front when creating the business. My clients know that we always discuss the “Parade of Horribles” when drafting governing documents, with the hope of avoiding undue conflict at the time the business is sold or owners separate.

In future articles, I will focus on the specific concerns that arise in business divorce and ways in which owners might avoid these issues with some up front planning.

Florida Legislature Passes New Revised Limited Liability Company Act – Important Reading for Members and Managers of LLCs

Intro

On May 3, 2013, the Florida House of Representatives unanimously passed the new Florida Revised Limited Liability Company Act (the “New Florida LLC Act”).  The Florida Senate unanimously passed a companion bill a week earlier.  Governor Scott approved the bill without issue or opposition on June 14, 2013.  Since LLCs are the most common form of business in Florida, this article is important reading for all business owners, especially owners seeking to protect their LLC assets and personal assets as soon as 2014. The New LLC Act will be codified as Chapter 605 of the Florida Statutes and will govern limited liability companies (“LLCs”) within the state of Florida.  The New Florida LLC Act is materially different, in both form and substance, than the Existing Florida Revised Limited Liability Company Act (the “Existing Florida LLC Act”), which is codified in Chapter 608 of the Florida Statutes.  If you or your company is an existing Member or Manager of a Florida LLC, or if you plan to become one in the near future, it is extremely important to understand the New Florida LLC Act and how it may impact your existing and future operating agreements and other governance documents.   The summary below is not a comprehensive review of the new LLC Act and is not intended to replace the advice of an attorney, but rather is designed to help you assess your own LLCs and potential need to take action.

When will the New Florida LLC Act become effective?

 The New Florida LLC Act becomes effective on January 1, 2014 for all LLCs formed in Florida on or after January 1, 2014.  For all LLCs in existence prior to January 1, 2014, the New Florida LLC Act will not become effective until January 1, 2015; however, the members of an LLC may elect to have the New Florida LLC Act become effective as early as January 1, 2014. To do so, the governing documents of the LLC will need to be amended.

How will the New Florida LLC Act impact my LLC?

 The New Florida LLC Act, like the Existing Florida LLC Act, and like most business organization statutes, is a default statute, which means that it provides a set of standard rules governing LLCs and how they are organized, how they operate, and how they are governed.  These standard rules may be modified, with limited exceptions, through specific language contained in either the Articles of Organization or the LLC’s operating or management agreement.  Like all LLC statutes, the New Florida LLC Act specifically prohibits the LLC from including language that modifies or supersedes certain statutory provisions (these are often referred to as “non-waivable provisions”).  This is significant because the New Florida LLC Act expanded the number of provisions which are now,  non-waivable and may not be altered by agreement of the members.

What changes were made in the New Florida LLC Act?

Expanded Non-Waivable Provisions.  The New Florida LLC Act has clarified that an LLC’s operating agreement may not remove certain rights, obligations and authority granted by the Act. Some of the provisions which an operating agreement may not change include:

  1.  The ability of the LLC to sue and be sued in its own name
  2. The right of a member to maintain a direct cause of action against the LLC, another member, or a manager in order to enforce such member’s rights and otherwise protect such member’s interest
  3. The right of a member to maintain a derivative action
  4. The right of an LLC to refuse to relieve persons, including members and managers, from liability if such persons acted in bad faith or committed willful, or intentional misconduct or a knowing violation of the law
  5. A Member’s or Manager’s duty of care, duty of loyalty, or obligation of good faith and fair dealing The  power of a member to dissociate from the LLC
  6. Statutory requirements with respect to the  contents of a plan of merger, plan of interest exchange, plan of conversion, or plan of domestication, plan of dissolution, articles of organization, statutory agents and other similar provisions
  7. The applicable governing law of the Florida LLC

Managing Member Eliminated.  Under the Existing LLC Act, there are three potential management options:  (1) Member managed, (2) Manager managed, and (3) Managing Member managed.  The New Florida LLC Act has effectively eliminated the concept of Managing Member managed.  It is possible that your operating agreement may need to be amended in order to avoid confusion, unintended results, and unintended personal liabilities, and to make very clear which of the remaining options you intend to use for your LLC.  For example:  once the New Florida LLC Act becomes effective, for those LLCs that are Managing Member managed, the Managing Member may no longer be able to act alone and may require all authorized actions to be subject to a member vote in accordance with the operating agreement.  In order to avoid an unintended result, you should revise your operating agreement and governance documents to reflect the intent of the members.

New Statement of Authority.

The New Florida LLC Act allows an LLC to file a statement of authority with the Florida Department of State as a way of providing constructive notice to third parties regarding persons authorized to act on behalf of the LLC.  The Statement of Authority will be effective for five years from the last amended or filed Statement of Authority, unless terminated earlier in accordance with the New Florida LLC Act.  You should consult with an attorney to determine the implication of filing a Statement of Authority and whether such Statement of Authority would be beneficial for your LLC.

Other Changes.

  •  Non-US entities are now permitted to domesticate as a Florida LLC
  • Non-economic members (members that don’t or are not obligated to contribute) are now permitted
  • The new Act includes specific service of process rules for LLCs

What should I do with my existing operating agreement?  Moving forward, how will my operating agreements be different?

If you or your company are a member or manager of an existing LLC, or are planning to enter into a new LLC, you need to understand the New Florida LLC Act and all the changes that were recently made.  At minimum, you should review your operating agreement with a qualified business attorney. LLC Agreements need to reflect how the members desire to operate the business. An experienced and practical business attorney will help you navigate the new Florida LLC Act in a way to help you amend your operating agreement to be consistent with your intent and operations.

The Walk Law Firm is available to review your operating agreement and help you understand the impact the New Florida LLC Act will have on your Florida entity. Operating reviews can be handled on a Flat Fee or Fixed Fee basis.   As experienced Florida business and commercial law attorneys, we have studied the New Florida LLC Act and can work with you to revise, amend, restate and draft new provisions for your LLC management and operating agreements eliminating unintended confusion or results.

 

Attorney Rochelle Friedman Walk has Achieved the AV Preeminent® Rating – the Highest Possible Rating from Martindale-Hubbell®.

NEWS:    In the world of lawyers, there are many honors and opportunities to buy plaques and spend money to bolster one’s career, but in my book, only some honors worthy of sharing. I have recently learned that I was named a Top Lawyer in Tampa Bay for 2012 and again for 2013 by Law.com, the National Law Journal and some other related publications. This honor stems from my AV – Preeminent Rating, which I achieved and have maintained for more than 10 years. It truly is an honor to be rated by other attorneys in the top category for both ethical standards and legal ability. Some details of the honor:

Rochelle Friedman Walk, a lawyer and mediator based in Tampa, FL whose primary areas of practice are Business and Commercial Law and Alternative Dispute Resolution, has earned the AV Preeminent® rating from Martindale-Hubbell®

“Tampa, FL, March 4, 2013 – Martindale-Hubbell, a division of LexisNexis®, has confirmed that attorney Rochelle Friedman Walk still maintains the AV Preeminent Rating, Martindale-Hubbell’s highest possible rating for both ethical standards and legal ability, even after first achieving this rating in 2002,” according to the press release I received today.

The Martindale-Hubbell AV Preeminent® rating was started more than 130 years ago and is used by attorneys while searching for their own expert attorneys. With websites and social media, anyone can determine a lawyer’s rating by looking  it up on Lawyers.com or martindale.com. The Martindale-Hubbell® AV Preeminent® rating is the highest possible rating for an attorney for both ethical standards and legal ability. This rating represents the pinnacle of professional excellence. It is achieved only after an attorney has been reviewed and recommended by their peers – members of the bar and the judiciary.

The Walk Law Firm provides general counsel and mediation services to a diverse array of local, national and even international clients with particular focus on providing practical business counsel and alternative dispute resolution for businesses with small or nonexistent legal departments. I initially launched the firm to better serve business and mediation clients. Our focus is to assist businesses and entrepreneurs achieve their goals in a cost-effective and expedient manner. Our lean cost structure is designed to keep the burden of significant overhead costs low.

I am also a Florida Supreme Court certified Circuit Civil and Appellate Mediator, serve on the FINRA, Bankruptcy Court and Middle District mediation panels, handling business and financial meditations for parties wanting an experienced executive and lawyer mediate their matters.

To find out more or to contact Rochelle Friedman Walk of Tampa, FL, call 813-999-0199, or visit www.WalkLawFirm.com.

As a result of this honor, American Registry LLC, has added Rochelle Friedman Walk to The Registry™ of Business and Professional Excellence. For more information, search The Registry™ at http://www.americanregistry.com.

I am very proud that I have achieved the AV Preeminent® Rating – the highest possible rating from Martindale-Hubbell®.