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Can an LLC Expel an LLC Member in Florida?

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Disputes between LLC members are relatively common, and there are situations where the discussion of expulsion comes up. In Florida, you can only expel an LLC member under certain circumstances, which are outlined in the state’s Revised Limited Liability Company Act, known as the “Revised Act.”

The Revised Act took effect on January 1, 2015, and is covered in Florida Statutes, Chapter 605. What’s important to note is that the Revised Act applies to all Florida LLCs, not just those that were created after January 1, 2015. Under the Revised Act, you can only expel a member in one of three ways.

Method One — Operating Agreement

If the LLC Operating Agreement allows for expulsion under specific circumstances, then a member may be expelled if one of these situations has occurred. This is one reason preparing a comprehensive Operating Agreement for your LLC is so important. If members of an LLC have included certain language and remedies in their Operating Agreement regarding expelling a member when appropriate, the court typically will enforce the Operating Agreement’s terms.

Method Two — Unanimous Agreement

An LLC can expel a member if all other members come to a unanimous agreement that (a) it would be “unlawful to carry on” the activities and affairs of the LLC if the member were to remain a member, or (b) there was a transfer of this individual’s transferable LLC interest, unless the transfer was for security purposes or due to a charging order that has not been foreclosed.  ‘ 605.0602(4), (5), Fla. Stat.

Section 605,0602(4), Florida Statutes, however, does not  define what “unlawful to carry on” means.  A possible interpretation could be that members are justified in expelling another member who has been engaged in criminal activity, as his or her continued membership could jeopardize the LLC’s ability to operate legally.

Alternatively, a member’s criminal conviction could jeopardize the LLC’s ability to conduct its primary business.  An example might would be if an LLC member is a securities broker-dealer and the member’s criminal conviction precludes the broker-dealer from carrying a securities license required to operate its business.

Method Three — Court Expulsion

The third method to expel an LLC member is through a court proceeding. If a  member has filed a direct (non-derivative) action, or the LLC itself has filed an action, a  court has the authority to expel a member because  (a) the member engaged in activity that has adversely and materially affected the LLC’s affairs and activities; (b)  the member has willfully or persistently committed a material breach of the operating agreement or  the member’s fiduciary duty of loyalty or care; or (c) the member is engaged in some type of conduct that makes it unreasonable to carry on the LLC’s activities with the member’s continued  membership in the LLC.

What to Do if You Need to Expel a Member from an LLC?

Absent the existence of an Operating Agreement, or any clause within your Operating Agreement that clearly defines the requirements and procedure for expelling a member, the other members and LLC will be left to follow the statutory requirements for a unanimous or judicially-ordered expulsion.  That analysis can be complex, however, and is likely to be met with a fight if the LLC has any material value.  Accordingly, an LLC should only expel a member after consulting a skilled Florida LLC attorney experienced in LLC member disputes. The team at McCabe Rabin, P.A. has this experience. Contact our office at 561-659-7878 to schedule a consultation.

Resource:

leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0600-0699/0605/Sections/0605.0601.html

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