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Under the Revised LLC Act, a foreign limited liability company may not “transact business” in Florida until it gets a “certificate of authority” from the Secretary of State.  But what does that mean?  If an LLC buys office equipment from a vendor in Florida without a certificate of authority, does it run afoul of the LLC Act?

The short answer is no.  Helpfully, the statute lists several activities that an LLC may conduct in Florida that do not constitute “transacting business”:

  • maintaining, defending, or settling a lawsuit;

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Yes, but only when they are mandatory forum selection clauses.  Parties to a contract have the right to select and agree on a particular venue to have their disputes determined.  The key distinction, however, is whether the forum selection clause is mandatory or permissive.  Only a mandatory clause is enforceable such that a court will dismiss a case for improper venue.

So how do you determine whether a forum selection clause is mandatory or permissive?  Mandatory clauses require an exclusive venue for disputes to be resolved.  In contrast, permissive clauses only provide “consent to jurisdiction” in a particular venue, but do not limit disputes to a particular forum.  The linchpin in determining whether a clause is permissive is if it lacks words of “exclusivity” in selecting a particular forum.

In sum, the courts follow rules of contract construction in determining whether a forum selection clause is mandatory or permissive. Indeed, the use of certain terms and phrases in the clause that suggest the exclusivity of a particular forum, e.g., shall, must, only, select, limited to, the proper, forsaking any other, etc., are more likely to lead a court to conclude the clause is mandatory.  If the court reaches such a conclusion, it is required to dismiss a case for improper venue if a party moves for dismissal.

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In any action where a party has asserted a claim to dissolve an LLC, the court has the authority to appoint a receiver to wind up or liquidate the LLC.  In order to appoint a receiver, the court must first hold a hearing after providing notice to all parties and interested persons designated by the court.  If the court appoints a receiver after such hearing, the court retains exclusive jurisdiction over the LLC and its property.  The court also may require the receiver to post a receiver’s bond in an amount set by the court. § 605.0704(1), (2), Fla. Stat.

In appointing a receiver for the LLC, the court must describe the receiver’s powers and duties in its order.  These powers include:

  • The receiver’s power to dispose of some or all of the LLC’s assets at a public or private sale;
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group-300x200A few weeks ago, we posted about a member’s exposure for the debts of an LLC.  We thought it might be useful to discuss additional situations when a member or a shareholder will be liable for the LLC’s or corporation’s obligations.

Florida courts, like many other U.S. jurisdictions, recognize a doctrine often called “piercing the corporate veil.”  This is a doctrine developed in Florida common law, rather than from a statute.  When a court “pierces the veil,” it will disregard the corporate entity and treat the liabilities of the company as the liabilities of each individual member or shareholder.  So, for example, the Acme Company has two shareholders, Larry and Curly.  If Moe sues Acme Company, under normal circumstances, he can get a judgment against the company only.  However, if the court “pierces the veil,” Moe will get a judgment against Larry and Curly jointly instead of and in place of his judgment against the company.

As we described a few weeks ago, however, members of an LLC will not be liable individually absent some kind of wrongdoing.  The same is true under the common-law “piercing the veil” analysis applicable to both corporations and LLCs.  Florida courts generally look for three elements before holding shareholders or members liable for the company’s obligations:

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Becoming a member of an LLC is relatively simple.  The requirements for becoming an LLC member vary slightly, however, depending on whether the member is joining at the formation of the LLC or later.

At formation, when the LLC will have only a single member, a person may become a member of the LLC only as agreed to by that person and any “authorized representative” designated by the LLC.  In this context, the single member and the authorized representative may be the same person. § 605.0401(1), Fla. Stat.  As defined by statute, an authorized representative is a person authorized by a prospective member of the LLC to form the LLC by executing and filing its articles of organization with the State of Florida.  § 605.0102(8)(a), Fla. Stat.

Similar to a single-member LLC, when an LLC is to have more than one member at formation, each member must consent to become a member. Likewise, if the LLC has an authorized representative designated by the LLC, that representative also must consent.  § 605.0401(2), Fla. Stat.

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Under the Florida Revised LLC Act, a debt, obligation or liability of an LLC is solely the responsibility of the LLC and a member cannot be held personally liable solely because of the member’s status as a member.  In addition, an LLC’s failure to observe formalities relating to the exercise or management of the LLC’s affairs is not a sufficient ground to impose personal liability against the member.  See Fla. Stat. § 605.0304.

Similarly, in a member-managed LLC, with limited exceptions, a member is not personally liable for damages to the LLC, other members, or any third party for any statement, vote, decision or failure to act regarding management or policy decisions by the member. See § Fla. Stat. 605.04093.  The exceptions are when:

  1. The member has breached any duties; and

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In 2013, the Florida Legislature adopted the Revised Florida Arbitration Act (the “Revised Act”).  One of the major changes in the Revised Act is the amendment to section 682.11, which, for the first time, gives arbitrators the authority to award attorneys’ fees.

The relevant language in section 682.11(2) provides that an “arbitrator may award reasonable attorney fees and other reasonable expenses if such an award is authorized by law in a civil action involving the same claim or by the agreement of the parties to the arbitration proceeding.” (Emphasis added).

Why is this amendment significant?  Because previously, arbitrators lacked the authority to make awards of attorney’s fees absent a stipulation by the parties.  Under the amendment, however, it is now clear that a party stipulation is not required and the arbitrators may make an award of attorney’s fees if such an award would be permitted in court.

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We’ve written on this blog about how “derivative actions” work under Florida’s Revised LLC Act.  As we’ve previously explained, a derivative action is a method by which a minority interest-holder can bring a claim in court in the name of the company.  Often, these suits are used to recover damages from controlling shareholders or officers whose actions are harming the company.

In the context of a corporation, Florida’s Business Corporations Act says that any person or entity who is a shareholder at the time the harm occurred may bring the suit.  Included in the definition of “shareholder” is any person who is the beneficial owner of shares held in a voting trust.  Before filing suit, the shareholder must first make a demand on the board of directors to correct the harmful conduct.  Once the demand is made, the corporation has 90 days to respond.  If the corporation rejects the demand, the shareholder may file suit, alleging with particularity the specifics of the demand and the board’s response.

Unlike the LLC act, the Business Corporations Act does not explicitly authorize a suit where a demand on the board of directors would be futile.  Nevertheless, two Florida courts have found that “demand is not necessary if the directors . . . whether by reason of hostile interest or guilty participation in the wrongs complained of, cannot be expected to institute suit.”  Belcher v. Schilling, 309 So. 2d 32, 35 (Fla. 3d DCA 1975) (quoting Orlando Orange Groves Co. v. Hale, 144 So. 674 (Fla. 1932)).  Of course, neither of these cases construed the current version of the Business Corporations Act, so the safer practice would be to make a demand on the board of directors, notwithstanding any perceived futility.

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An effective tool for a party taking discovery in Florida state court is deposing the corporate representative of an adverse party or non-party.[1] Accordingly, a corporate representative deposition requires the lawyer defending the corporate representative to prepare diligently to defend the deposition.

Here are five tips for defending the corporate representative deposition.

  1. Place Your Objections on the Record as to the Defects in the Notice.