Limited liability companies, also known as LLCs, combine the benefits of corporations and partnerships into one business model.
Members of an LLC can be added and removed for a variety of reasons.
The terms of the operating agreement dictate nearly every aspect of your business, so including clauses for how to remove a member from an LLC is vital.
Our experienced business law attorneys will provide you with all the information you need to draft an operating agreement that will keep you in business and out of the courtroom.
“Since ownership in an LLC is property belonging to the member, a member cannot simply be removed unless the Operating Agreement or the applicable laws provide a basis for removal.”Business Attorney Trevor Brewer
Benefits of an LLC in Florida
Many business owners elect to form LLCs because they combine the most desirable features of corporations and partnerships into one business entity.
Easy to Form
Articles of organization must be filed with the Florida Department of State to form an LLC in Florida. Additionally, you must pay a one-time filing fee of $125. LLCs must submit an annual report and pay a yearly fee to maintain good standing.
LLCs are “pass-through” entities, meaning that the LLC’s profits are not taxed at the LLC level. Instead, individuals who receive profits from the LLC will pay taxes through their personal income tax return.
Corporations, on the other hand, are “double-taxed.” A corporation’s earnings are taxed at the corporate level, and shareholders must pay taxes again on the dividends they receive.
Business owners seeking protection from personal liability often elect to form an LLC. The hallmark of an LLC is the limited protection for its owners from the liabilities of the LLC.
An LLC is considered a separate legal entity from its owners. The owners’ personal assets cannot be accessed to pay the debts of the LLC. Only the amount of money each member invested is at risk.
Ownership and Management
Florida law allows LLCs to have as many members as desired. Notwithstanding, Florida permits a single individual to form an LLC.
There are two basic management structures for LLCs: member-managed and manager-managed.
A member-managed LLC is, as the name suggests, managed by its members. All members are responsible for making decisions affecting the LLC in a member-managed structure.
Decision making in a manager-managed LLC falls on the manager. The manager handles the business affairs of the LLC, similar to a corporate director, while the members take a passive role in management and fulfill a role more akin to a shareholder.
Manager-managed LLCs are more hands-off for members of the LLC, but members are still responsible for certain decisions, like how the profits and losses will be shared.
How to Add a Member to an LLC in Florida
The process for adding a new member to an LLC should be addressed in the LLC’s Operating Agreement.
If the Operating Agreement does not provide specific instructions, then the Florida Statutes require that a majority of the existing members of the LLC consent to add a new member.
In any case, the new member should sign the Operating Agreement, or all the members should sign a new Operating Agreement that includes the new member.
When a new member is added to a member-managed LLC, it is also necessary to file articles of amendment or submit an amended annual report with the Florida Secretary of State to add the new member. The fee to file an amended annual report is $50.
How to Remove a Member of an LLC in Florida
Removing members from an LLC is usually more complicated than adding them.
There are multiple options for removing LLC members depending on the circumstances. As always, the terms of the Operating Agreement are primarily controlling.
The Florida Revised Limited Liability Company Act (the Revised Act) applies to the LLC if an operating agreement does not exist or does not address how to remove a member.
Our team at BrewerLong possesses intricate knowledge of Florida LLCs and can tell you how to remove a partner from an LLC as smoothly as possible.
Most operating agreements provide a process for ending membership in an LLC. An LLC buyout agreement can provide direction when a member decides to leave an LLC.
The buyout agreement can allow remaining members of the LLC to buy out the departing member’s interest rather than allowing the interest to pass to an unknown party.
Expulsion Based on Operating Agreement
Most LLC operating agreements contain provisions that allow for the expulsion of LLC members as a remedy for the member’s misconduct. The operating agreement dictates the forms of misconduct that warrant expulsion.
Expulsion Based on Unanimous Consent of LLC Members
Under the Revised Act, a unanimous vote of the LLC members may be sufficient to remove a member in limited circumstances. These circumstances include:
- When it would be illegal to carry on the LLC’s activities and affairs with that person as a member;
- When that person’s entire transferable interest in the LLC has been transferred, unless the transfer was pursuant to a charging order or for security purposes; and
- When that member was an entity and the entity has since been dissolved.
Even in the presence of one of these circumstances, obtaining unanimous consent can be tricky. Contact an experienced business law attorney for additional information.
Expulsion by Court Order
LLC members can request that a court expel an LLC member in limited situations. Florida law gives a court authority to expel an LLC member who:
- Has engaged or is engaging in wrongful conduct that has adversely and materially affected the LLC’s activities and affairs or is expected to do so;
- Has committed willfully or persistently, or is committing willfully and persistently, a material breach of the operating agreement or a fiduciary duty; or
- Has engaged or is engaging in conduct relating to the LLC’s activities and affairs which makes it not reasonably practicable to carry on the activities and affairs with the person as a member.
Expulsion by court order is often a method of last resort and is difficult to enforce.
Contact a Business Law Attorney Today
Adding and removing members of an LLC is a serious decision. Determining the proper course of action to make these changes can prevent unnecessary court costs later down the road.
Our team at BrewerLong has over thirteen years of experience representing business owners in these disputes. Contact us today for a consultation.
This blog post is provided on an “as is” and “as available” basis as of the date of publication. We disclaim any duty to update or correct any information contained in this blog post, including errors, even if we are notified about them. To the fullest extent permitted by law, we disclaim all representations or warranties of any kind, express or implied, with respect to the information contained in this blog post, including, but not limited to, warranties of merchantability, fitness for a particular purpose, title, non-infringement, accuracy, completeness, and timeliness. We will not be liable for damages of any kind arising from or in connection with your use of or reliance on this blog post, including, but not limited to, direct, indirect, incidental, consequential, and punitive damages. You agree to use this blog post at your own risk. Regarding your particular circumstances, we recommend that you consult your own legal counsel–hopefully BrewerLong.