Operating a LLC: What Can be Done When a Member is Destructively Asserting Their Power Over the LLC?

Operating a LLC: What Can…

In the past, we have written numerous blogs on the importance of having an operating agreement if you hold a membership interest in a LLC. Disagreements often arise between members of a LLC which can be resolved with a comprehensive operating agreement. We pose another challenge in this blog that can be solved with a well-drafted operating agreement.

What can you do to deal with a disruptive and problematic member who is interfering with the effective operations of the LLC and when should you deal with this problem?

The time to deal with it is now, whether you already have an operating agreement or whether you are thinking of forming a new business in the future. It is very often that we see clients come to us who are faced with this exact issue: the members of a multi-member LLC have a disputed issue and either do not have an operating agreement or they have an operating agreement that is insufficient and does not address the issue at hand. If one member of the LLC becomes troublesome and their actions are inhibiting the operations of the LLC, what can the other members of the LLC do? In that scenario, you would have to refer to the language in Florida’s Revised LLC Act to determine what if any alternatives are available, but if you are proactive and make the decision ahead of time, you can control your business’s destiny by putting clear terms in your operating agreement.

Florida’s Revised LLC Act is the default, absent an operating agreement, which provides 3 ways for the involuntary dissolution of a member to occur.  First, the LLC’s operating agreement can provide a manner for a member to be involuntary dissociated from the LLC.  See, Fla. Stat. 605.0602(2) and (4). However, if the LLC does not have an operating agreement or this is not provided for in the operating agreement, then Fla. Stat. 605.0602(5) provides that the members may unanimously vote to expel a member (this provision applies to unruly members only to the extent the lawful activities of the LLC can no longer be carried on). Third, Fla. Stat. 605.0602(6) provides judicial expulsion as a possible alternative, which permits the members to apply to the court to dissociate a troublesome member (this may be appropriate in an instance whether there is a deadlock or other impasse that cannot be resolved between members).  Judicial dissolution limits a member’s rights in the LLC by precluding them from participating in the management of the LLC’s affairs and terminating their fiduciary duties. See, Fla. Stat. 605.0603(1)(a) and (b). 

Thus, while Florida’s Revised LLC Act is helpful in providing some solutions absent an operating agreement, in order to ensure that your desired alternatives are available should a dispute occur, you need to confirm that an appropriate operating agreement is prepared for your business that includes the necessary language should certain situations arise, including but not limited to a forced buyout provision. 

If you or your client require assistance in preparing an operating agreement or evaluating the LLC documents already in place, we invite you to contact the attorneys at Iurillo Law Group.

 

The contents of this blog and website are for informational purposes only and do not constitute legal advice. Use of and access to this blog and website do not create an attorney-client relationship between the user and Iurillo Law Group, P.A.

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