Florida LLCs: Outlining the Fiduciary Duties of Members and Managers
There is no question that a limited liability company (“LLC”) is often the preferred business structure among individuals who are seeking business ownership in Florida. Some of the reasons for that preferential treatment is due to do the flexibility of the LLC structure which provides the elasticity of a partnership with the asset protection of a corporation. Further, under a LLC structure, the members not only benefit from liability protection but the LLC structure allows its members to use the LLC’s “pass-through” taxation status. The LLC structure truly provides its members with the best of both worlds. Moreover, the management flexibility afforded to LLCs means that it can modify the default rules set by law (with minor exceptions) within the operating agreement. The operating agreement may also be modified or amended as the needs of the LLC change overtime.
However, like most corporate structures, LLC members and managers are subject to a limitation on their authority and are charged with a fiduciary duty to always hold the company’s interest at hand.
In Florida, an LLC will either be structured as manager-managed, or member-managed. In a manager-managed LLC, the members vote to appoint one or more managers to run the activities and affairs of the company while the members take a more passive role. In a member-managed LLC, all members are involved in the management and affairs of the company.
However, the difference between the two structures will only affect the decision-making process of the company, but not the fiduciary duties owed to its members and creditors. LLC fiduciary duties refer to the responsibilities expected of the members, managers or other officials representing the interests of the company; and those who are charged with the responsibility of running the LLC hold both fiduciary duties of loyalty and care under Florida law.
Fiduciary Duty of Care
The fiduciary duty of care refers to the responsibility of the members or managers of the LLC to refrain from engaging in grossly negligent or reckless conduct, willful or intentional misconduct or a knowing violation of law. Fla. Stat. §605.04091(3) In other words, the duty of care requires that members or managers always act in good faith and in the best interests of the LLC when fulfilling their obligations to and directing the activities of the LLC. For example, if a major transaction arises, a fiduciary must act in a reasonably prudent manner when advising and evaluating the terms of the potential transaction.
Fiduciary Duty of Loyalty
In addition to the duty of care, members or managers also owe the duty of loyalty to the LLC and its members. Under the duty of loyalty, a member or manager is supposed to put the success and benefits of the LLC above any individual advantages. In showing loyalty to the LLC, a fiduciary must avoid any conflicts of interest between the LLC’s objectives and their own personal aspirations. For example, if a fiduciary learns about a profitable financial opportunity through their dealings with the LLC, they may not try to expropriate the opportunity for their own personal gain.
Breach of Fiduciary Duty
In Florida, a breach of a fiduciary duty can lead to a personal liability claim against the fiduciary. However, the plaintiff making the claim against a fiduciary for a breach of their duties must prove that a fiduciary relationship existed to begin with. In addition, the plaintiff must show breach of that fiduciary duty and that said breach was damaging to the plaintiff and/or the company. Once this is established, the plaintiff may recover damages in the form of monetary compensation to recover losses from the breach as well as preventative relief which involves the rewinding of a transaction or removal of the fiduciary.
There are many ways in which a member or manager may breach their fiduciary duty to its members, the company or even creditors. Many members and managers are not even aware of the extent of their fiduciary duties such as those to creditors, which usually arises when the company is in financial difficulty such periods of insolvency or near filing for bankruptcy.
As such, it is important that you consult with an attorney who has experience with fiduciary duty and breach of fiduciary duty actions to protect your interest and obligation to the company. Our firm offers in person and virtual consults, if you have any questions or concerns about the topic of this blog or any business, commercial or employment law (Employer/Business Representation) issue, please feel free to call or text our office at 305-460-0145 or to schedule a consult here.
For Whatsapp calls or text, please feel free to call or text us at (786)479-0841.