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Saturday, November 05, 2016

Exceptions to Limited Liability for LLC Members [Florida]

Fla.Stats. §605.0304(1) provides for the limited liability of LLC members - it provides: "A debt, obligation, or other liability of a limited liability company is solely the debt, obligation, or other liability of the company. A member or manager is not personally liable, directly or indirectly, by way of contribution or otherwise, for a debt, obligation, or other liability of the company solely by reason of being or acting as a member or manager."

Nonetheless, there are other routes to liability for members, arising in their capacity as members. A recent article in the Florida Bar Journal provides details on many of these. These routes include;

  • A  member's written obligation to make future contributions. Sometimes, these are not obvious to unsophisticated members - for example, a provision in an operating agreement requiring members to be responsible for deficit capital account balances.
  • Provisions in an agreement for an LLC to be formed prior to organization.
  • The 2 year clawback for improper distributions, which can be imposed on the transferee, and members and managers consenting to the distribution (Fla.Stats. §§605.0405 and .0406). Thus, this liability can be imposed on members and managers who did not receive the distribution.
  • Responsible person liability for U.S. taxes (Code §6672), and for Florida sales or use taxes.
  • Tortious conduct individually committed by a member or manager.
  • Violation of officer or director fiduciary duties to the creditors of a company that operates in the "vicinity of insolvency" (See In Re Trafford Distribution Center, Inc., 431 D.R. 263 (Bankr. S.D. Fla. 2010); In re Sol, LLC, 2010 Bankr. LEXIS 2047 (S.D. Fla 2012))
  • Theories expanding fiduciary duties to persons affiliated with owning entities, based on expansive case law, such as In re USACafes, L.P. Litigation, 600 A.2d  43 (Del. Ch. 1991) (expanded fiduciary duties of directors of general partner of limited partnership towards a limited partnership) and Beaubien v. Cambridge Consol., 652 So.2d 936, (Fla. 5th DCA 1995) (individual managers of corporate trustee owed fiduciary duties individually to the beneficiaries of the trust), and similar expansion of control person liability as applied in context of tortious conduct (Quail Cruises Ship Mgmt., 2011 U.S. Dist. LEXIS 122830 (S.D. Fla. Oct. 24, 2011).
  • Potential for expanded duty of loyalty under Fla.Stats. §605.04091(2) which has a nonexclusive list of bad acts.

Judicial Exceptions to Limited Liability Protection Provided by Florida LLCs, by Thomas O. Wells and Diane Noller Wells, The Florida Bar Journal, November 2016

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