Anatomy of a

Business Divorce: by Hank Jackson

Florida LLCs

B
usinesses are started every day through a variety of legal mechanisms
— sometimes lawyers assist the owners in creating the business en-
tity, and other times the owners do it themselves. In Florida, there
are currently more than 1.4 million active limited liability companies (LLCs)
registered with the Department of State, making it by far the predominate
form of business entity.1 Most of these LLCs are believed to be closely held
— meaning they have relatively few owners and are not publicly traded.2

Illustration by istockphoto.com/Jack_Aloya
8 THE FLORIDA BAR JOURNAL/MAY/JUNE 2021
 As could be expected, once initiated such businesses do
not prove everlasting. The causes for owners’ conflicts are
numerous — often resulting in intractable disagreements
over the control and direction of the company. Such conflicts
are commonly referred to as “business divorces.” Similar to
a marital divorce, collectively owned property must either
be divided or possibly kept intact to maintain its highest
value. There are different paths to reach final resolution,
which ranges from presuit negotiated settlements to formal
court-imposed remedies under Florida’s Revised Limited
Liability Company Act (Florida’s LLC statute).3
The Rationale for LLCs
Publicly traded corporations were designed to have
their ownership interests easily and freely traded through
an open market platform, such as the New York Stock
Exchange. Over time, they have become heavily regulated
by the Securities Act of 1933, Securities Exchange Act of
1934, and the Sarbanes-Oxley Act of 2002, which were
enacted to protect the public from misleading statements,
material omissions, and improper accounting concerning
these companies.
The advent of LLCs came much later in time. Florida
first legislatively authorized LLCs in 1982.4 At that time,
LLCs were created to provide tax benefits like a partner-
ship and limited liability like a corporation.5 However, as
also explained by the Florida Supreme Court, LLCs are
characterized by restrictions and limitations on “the trans-
fer of ownership rights” and “the transfer of management
rights.”6 It is these restrictions regarding ownership and
management that make closely held LLCs desirable to own
while at the same time making their business divorces
more challenging.7
Does an Operating Agreement Exist?
Analysis of a business divorce begins with determining
whether the owners (members)8 have an operating agree-
ment governing their relationship or will rely, by default,
on the provisions of Florida’s LLC statute. Importantly,
a writing is not required to find that the owners have an
operating agreement. As defined by Florida’s LLC statute,
an “operating agreement,” whether specifically referred to
as an operating agreement or not, may be “oral, implied,
in a record, or in any combination thereof.”9 That said,
companies choosing to have an operating agreement
normally do so through a formal written document titled,
“Operating Agreement,” which is executed by the members
and contains a provision stating that it can only be modi-
fied in writing. This prevents a potentially fact-intensive
threshold controversy — whether an oral or implied op-
erating agreement exists or whether a previously written
operating agreement has been orally or impliedly modified.
• Absence of an Operating Agreement — Florida’s LLC
statute does not require an LLC to have an operating
agreement of any type — written, oral, or implied.10 Similar
to couples marrying without a prenuptial agreement or
people dying without a will, LLCs without an operating
agreement will be governed solely by the default operating
rules and procedures as set out in Florida’s LLC statute.
Businesses that often lack an operating agreement include
those owned by family members or the more modern ver-
sions of closely held businesses — such as college room-
mates starting a tech company from their dorm room or
their parents’ garage. Indeed, the nature of the relationship
between the owners or the lack of funds for professional
legal advice may lead to the absence of an operating agree-
ment. Like other types of divorces, the owners in closely
held businesses sometimes fail to plan at the beginning of
the relationship for what happens at its end.
• Operating Agreement Exists — Florida’s LLC stat-
ute clearly contemplates that the members of LLCs may
enter into an operating agreement to govern the terms of
their legal relationship.11 Some companies have standard
boilerplate operating agreements downloaded from the
internet. Others have industry-specific, lawyer-drawn or
highly negotiated operating agreements. Regardless, an
operating agreement brings the force of contract law to
bear in determining the owners’ relationship.12 There are
exceptions to this freedom to contract. There are rights and
duties, as will be discussed, that are so fundamental that
Florida’s LLC statute prohibits them from being waived
or modified by an operating agreement.13 Operating agree-
ments typically include specific provisions governing issues
of ownership, control, transfer of interests, and valuation.
Indeed, it is the ability to customize such provisions to
particular types of businesses, owners, and circumstances
that makes the operating agreement such a useful tool.
Operating and Financial Records
Distrust is frequently a factor in a business divorce.
As an initial step toward resolution, owners will want to
assure themselves that they have accurate information
about the company’s operations and finances. The cliché
“knowledge is power” rings true here and is recognized in
Florida’s LLC statute, which mandates that members are
entitled to certain operations and financial information
and that such entitlement cannot be waived through the
terms of an operating agreement.14
This includes the absolute right, without the need to
show relevance or materiality, to basic company informa-
tion, including the company’s list of members, incorpora-
tion documents, then-effective operating agreements, the
three most recent years of tax returns, the three most
recent years of financial statements and records reflecting
the amount of cash and agreed value of property or other
benefits contributed and agreed to be contributed by each
member.15 These represent core documents to which all
members in all circumstances are entitled.
Additionally, members are entitled by Florida’s LLC
statute to an even broader scope of information regarding
the company’s activities, affairs, and financial condition to
the extent such information is “material to the member’s
rights and duties”16 or “reasonably related to the member’s
interest.”17 What company information may be material or
related varies depending on the dispute and circumstances
in each case. Sometimes members can easily identify the
specific information that is material or related — other
times members are so far removed from the company’s
THE FLORIDA BAR JOURNAL/MAY/JUNE 2021 9
management that they have dif-
ficulty knowing where to begin. The
company’s financial and accounting
records are most always a good place
to start — especially where issues of
either mismanagement or valuation
of a member’s interest are involved.
The company’s financial and ac-
counting information is probably
entered, kept, and organized through
an accounting software program. It is
often wise for a member or a member’s
attorney to hire an accountant to as-
sist in formulating specific requests,
obtaining the information in usable
form, and reviewing and analyzing
the information ultimately provided.
Without the proper accounting soft-
ware and understanding of its full
functionality, a member’s ability to
obtain and analyze the company’s
financial and accounting information
can be substantially hindered. An
expert accountant consulted in the
beginning of the process can save a
member significant time and money
in the long run.
If the company refuses to allow a
member access to material and re-
lated information, Florida’s LLC stat-
ute accords them the right to compel
access through court intervention.18
If the court orders access, the court
“shall” also order the company to pay
the costs, including reasonable attor-
neys’ fees incurred by the member to
obtain the order.19 A court may have
difficultly (at least initially) deter-
mining which party is the more ag-
grieved — similar to a messy marital
divorce. But it is comparatively easy
for a court to decide that a substantial
amount of the company’s operational
and financial information should be
shared with its owners and to award
attorneys’ fees against those that
obstructed such sharing.
Not surprisingly, the first step of
sharing information can be so benefi-
cial to the owners in understanding
and evaluating the conflict that it
sometimes leads to an early resolu-
tion of the business divorce.
Transfer and Valuation of an
Owner’s Interest
As mentioned earlier, the restric-
tions on the transfer of an owner’s
interest is one of the hallmarks of
10 THE FLORIDA BAR JOURNAL/MAY/JUNE 2021
an LLC. Unless an operating agree-
ment states otherwise, a member
can transfer their purely economic
interest in the company, but the
transferee may not participate in
the company’s management or have
access to records and information
relating to the company’s activities
and affairs.20 The inability to transfer
management and information rights
substantially impacts the worth of the
interest and the number of potential
buyers for such an interest. Simply
stated, the transfer restrictions make
it harder to sell the member’s inter-
est. However, looking at the transfer
limitations from the perspective of the
remaining members, the restrictions
are a key advantage to a closely held
business. They prevent an outsider
from gaining control or influence over
the company — an outsider that the
other members never agreed should
become an owner.
That said, the members, through
an operating agreement, can either
slightly tweak or greatly modify the
default rules that limit the transfer-
ring of interests.21 For example, they
can require all members to agree to
every type of transfer, permit trans-
fers of full interests, specify to whom
transfers can be made, set the timing
as to when transfers may occur, deter-
mine the value to be paid for interests,
or otherwise customize the transfer
requirements to fit the specific busi-
ness, people, and circumstances
involved. Some common operating
provisions regarding transfer of in-
terests are called buy-sell provisions.
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Determines Value
A buy-sell provision is an agree-
ment (often within the operating
agreement) that an owner’s interest
can be transferred under certain
specified conditions. Such conditions
include to whom the interest can be
transferred and how the price is de-
termined. One type of buy-sell provi-
sion states that the price for the full
interest is determined at the time of
an initial offer by the offer’s terms.
In essence, it is the offer itself that
determines the price.
• Traditional Buy-Sell — The tra-
ditional buy-sell is such a provision.
It is frequently employed when there
are two members, each owning 50%
of the company, and it is particularly
useful when a company is in deadlock,
i.e., the owners cannot agree on how
to manage the company. It allows one
member to initiate a narrowly termed
offer to buy the other member’s entire
interest for a sum determined by the
offeror. Upon receiving the offer from
the initiating member (offeror), the
member receiving the offer (offeree)
has only two options: 1) accept the
offer — meaning sell the entire in-
terest for the sum stated in the offer,
or 2) actually purchase the offeror’s
interest from the offeror for the iden-
tical price. Most traditional buy-sells
require a short time, such as 30 days,
for the offeree to accept the offer or
agree to buy the offeror’s interest for
the same price. If the offeree fails to
act within the proscribed time period,
the offeree is deemed to accept the of-
fer by default. Under such a process,
the transfer occurs quickly.
• Right of First Refusal — The
right of first refusal is a typical buy-
sell provision used when there are
several owners of an LLC. It provides
that a member who has obtained a
bona-fide offer from a third party to
buy the member’s interest must first
provide the company and the other
members the opportunity to purchase
at the same price. If the company
and the other members refuse such
offer, then the interest can be sold to
the third party. This type of buy-sell
presupposes that a third party may be
willing to buy an interest in an exist-
ing closely held company. This may or
may not be realistic depending on the
type of business and the relationship
(if any) between the third party and
the other members.
• Right of First Offer — The right
of first offer is the opposite of the
right of first refusal. Pursuant to this
buy-sell provision, a member wanting
to sell must first offer to sell to the
company and existing members. If the
company and the other members do
not accept the offer, then the selling
member may, within a limited time,
sell the interest for the same price
to a third party. Similar to the right
of first refusal, it may be improbable
that a third party would be willing to
buy into a closely held business.
Buy-sell provisions where the price
is set by the offeror at the time of the
offer are not ideal for all businesses.
It may work well when it is easy to
assess the value of a company’s assets,
such as a company holding real prop-
erty or an established manufacturing
business. However, in the context of
complex businesses or service compa-
nies — such as where the members
are also paid employees, like accoun-
tants or physicians, serving particular
patients or customers — these types
of provisions may not be apt.22
Buy-Sell Provisions: Financials
or Appraisals Determine Value
The owners can also agree to buy-
sell provisions that value members’
interests based on the company’s
recent financials or current profes-
sional appraisals. These can provide
more intricate valuations than simply
letting the offer itself set the price.
The company’s financials can be
used to value a member’s interest
through applying a predetermined
formula to the company’s recent
financials. An easy illustration is a ba-
sic earnings multiplier formula: The
company’s total value is determined
by multiplying its annual earnings
in the most recent year-end income
statement by a multiplier, which often
ranges from one to 25 depending on
the particular business and industry.
The value of the member’s interest is
then determined by multiplying their
percentage ownership by the compa-
ny’s total value. Notwithstanding this
simple example, valuations based on
the company’s financials can be much
more detailed and complex, if needed,
depending upon the type of business,
the nature of the company’s assets
and liabilities, and even the events
prompting the transfer. Because of
these differences, the ability to cus-
tomize this type of buy-sell provision
in the operating agreement is par-
ticularly critical. Also key, this type
of valuation process relies on having
accurate company financials, which is
not always a certainty in some closely
held businesses.
The owners may also agree to
value members’ interests through a
third-party professional appraisal as
12 THE FLORIDA BAR JOURNAL/MAY/JUNE 2021
of the date of the transfer. Although
seemingly straightforward and argu-
ably more precise, contentious issues
can still arise: the specific appraiser
to be used, whether each side can pick
their own appraiser, the information
the appraisers have access to, the
method utilized in the appraisal, and
discrepancies between appraisals.
Unlike valuation based on a predeter-
mined formula, appraisals are subject
to considerable variation. As with the
other types of valuation, its applica-
bility and usefulness depend on the
nature of the business and its assets.
Importantly, these types of buy-
sells (using recent financials or cur-
rent appraisals to determine value)
will still need to specify to whom and
under what circumstances the inter-
ests can be transferred. Transfers
may be limited to other members or
family of the transferring member.
And transfers may be limited to or
even required based on the occurrence
of certain events, such as a member’s
termination of employment with the
company, incapacity, or death.
In summary, the range of buy-sell
provisions that can be included in an
operating agreement are as broad as
the types of industries, kinds of busi-
ness owners, and the business acu-
men of the lawyers representing the
owners.23 Sometimes such provisions
assist in the business divorce process.
Other times, they become the subject
of a contested contract dispute based
on the terms and interpretation of the
operating agreement.
Default Procedures and
Remedies Under Florida’s LLC
Statute
If the owners have not agreed on
how interests can be transferred in
the event of a business divorce, then
the default rules under Florida’s LLC
statute will govern.
• Voluntary Dissociation by an
Owner — Florida’s LLC statute grants
a member, unless stated otherwise in
the operating agreement,24 the power
to withdraw from the company by
notifying the company of their express
will to do so.25 The withdrawal or dis-
sociation is effective without regard to
whether there are sufficient grounds
to do so. 26 The determination of
whether the dissociation was rightful
or wrongful is ultimately determined
after the fact of dissociation. Pursuant
to Florida’s LLC statute, dissociation
is wrongful when done in breach of
an express provision of the operating
agreement or if it occurs before the
company is wound up.27
The benefit to a member voluntari-
ly dissociating under Florida’s LLC
statute (whether rightly or wrongly) is
that the member no longer owes fidu-
ciary duties of loyalty and care to the
company or other members regarding
matters occurring after disassocia-
tion.28 This can create a helpful legal
separation from the company and
other members, but that separation
comes at a cost. Voluntary dissocia-
tion reduces the member’s interest to
purely an economic one. The member
retains the right to interim distribu-
tions if the other members decide to
make such distributions.29 However,
the disassociated member loses the
right to participate in the manage-
ment and conduct of the company’s
activities and affairs.30 Additionally,
if the disassociated member in fact
withdrew wrongly, the member is
liable to the company and other mem-
bers for any damages caused by the
wrongful dissociation.31
• Involuntary Dissociation (Expel-
ling) of an Owner — In addition to a
member volunteering to disassociate,
the other members can involuntarily
dissociate or expel a member. The
operating agreement can state what
events cause a member to be so dis-
sociated.32 Also, Florida’s LLC statute
contains default provisions (unless
otherwise prohibited by the operating
agreement) that set out the conditions
under which a member is involuntary
dissociated. Some of these conditions
involve changes in the member’s
capacity or status, such as death or
incapacity of a member who is an in-
dividual, or the termination or disso-
lution of a member that is an entity.33
Other grounds for involuntary
dissociation center on the unlawful-
ness of operating the company with
a particular member participating
or the improper conduct of a mem-
ber. Florida’s LLC statute provides
that a member may be involuntarily
dissociated through unanimous con-
sent of the other members together
with the fact it would be unlawful to
carry on the business with the person
remaining as a member.34 Addition-
ally, Florida’s LLC statute states a
member or the company may bring a
direct action against a member that
can result in expulsion based upon the
member having 1) engaged in wrong-
ful conduct adversely affecting the
company; 2) willfully or persistently
breached the operating agreement
or the fiduciary duties of loyalty and
care; or 3) engaged in conduct making
it not reasonably practicable to carry
on the company with the member part
of the company.35 All these grounds
are to some extent subject to a trial
judge resolving issues of fact and
interpretation.
As an example, in Zell v. White,
No. 18-CA-182, WL 8106054 (Fla.
13th Cir. 2019), a Florida circuit court
found that a member, Mr. White, had
withdrawn $100,000 from the LLC’s
account without authorization and
kept it for his personal use. The judge
concluded that Mr. White’s miscon-
duct damaged the LLC and made it
“not reasonably practicable to carry
on the businesses with Mr. White as
a member.” Relying on Florida’s LLC
statute, the court ordered Mr. White
expelled as a member. 36 Then, the
court went further holding that Mr.
White’s misconduct was sufficient to
dissolve the LLC and ordered that Mr.
Zell, the remaining member, manage
the business and affairs of the LLC
until final dissolution.37
Importantly, unless the operating
agreement provides otherwise, invol-
untary dissociation — like voluntary
Merger and Appraisal Rights
Members owning a majority-in-
interest of the company, absent a
provision in the operating agreement
to the contrary, can force a sale of
the company through merging the
company with another entity. Un-
der Florida’s LLC statute, a plan of
merger requires the approval of mem-
bers holding a majority-in-interest in
the company.39 The company can be
merged (sold) to an unrelated third
party or merged into an existing
or newly created entity that is also
owned by the majority-in-interest
member(s). Merging into a company
also owned by the majority-in-interest
member(s) is commonly referred to as
a “squeeze-out merger.”40
When the majority-in-interest
member(s) approve a merger, the
objecting members who own minority
interests are entitled to the “fair val-
ue” of their interests — statutory ap-
praisal rights.41 Fair value is defined
as the “customary and current valua-
tion concepts generally employed for
similar businesses.”42 In determining
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fair value, the interests are not to be
discounted for the fact that they are
not otherwise marketable or make up
only a minority interest.43 This makes
sense considering that these members
owning minority interests did not
volunteer to give up their interests
or participate in any unlawful or im-
proper conduct toward the company
or other members.
Procedurally, how is fair value
determined? The company offers the
minority member what the company
contends is fair value.44 If a minority
member is dissatisfied with the offer,
the member must make a demand
stating what they believe is fair
value.45 If the company does not ac-
cept the minority member’s demand,
then the company “shall” commence
a court proceeding requesting the
court to determine the fair value.46 A
trial, typically with competing expert
appraisers opining on the fair value
of the member’s interest, is then held.
A “squeeze-out merger” can be an
efficient mechanism to effectuate a
business divorce. Also, through an

dissociation — does not extinguish

the member’s purely economic in-
terest, but only strips the member
of management and informational
rights.38 While the same misconduct 1300 Riverplace Blvd., Suite 401
Jacksonville, FL 32207
that supports a member’s expulsion,
1395 Brickell Avenue, Suite 800
as was the case in Zeller v. White, Miami, FL 33131
may support dissolution, this is
10150 Highland Manor Drive Suite 200
not always the case. Additionally, Tampa, FL 33610
dissolution is not always the best 305 Cherry Street,
approach for the members (includ- Panama City, FL 32401
ing the expelled member) to divest *Available for consultation at:
the expelled member’s economic 301 Clematis Street, Suite 300
West Palm Beach, FL 33401
interest. This is a situation where
Toll Free 866.542.1996
an operating agreement can be par-
ticularly helpful.

THE FLORIDA BAR JOURNAL/MAY/JUNE 2021 13

operating agreement, all the mem-
bers can agree if there is a merger
to waive their statutory appraisal
rights in favor of an alternative
valuation technique.47 However, it is
important to remember that waiver of
appraisal rights and use of an alter-
native valuation method may not be
completely unfettered. Some level of
reasonableness should be maintained.
As mentioned earlier, fiduciary duties
of loyalty and care of members and
managers cannot be unreasonably re-
stricted in an operating agreement.48
Grounds for Dissolution of the
Company
A more drastic measure in busi-
ness divorces is dissolution. The
grounds for dissolution can be set out
in the operating agreement.49 Also, a
member or manager of an LLC may
seek judicially imposed dissolution
under Florida’s LLC statute based on
any one of five grounds.50 These five
grounds, which cannot be eliminated
or varied by the operating agreement,
are the following:51 1) The conduct of
the company’s activities and affairs
is unlawful; 2) it is not reasonably
practicable to carry on the company’s
activities in conformity with the
company’s articles of organization
and the operating agreement; 3) the
managers or members in control of the
company have acted, are acting or are
reasonably believed to act illegally or
fraudulently; 4) the company’s assets
are being misappropriated or wasted
causing injury to the company or its
members; and 5) the managers or
members are deadlocked in manage-
ment of the company and irreparable
injury to the company is threatened or
being suffered.
These grounds for judicial dissolu-
tion require a member or manager
to make serious factual allegations,
which are likely to be vigorously
contested. Indeed, if all the members
agreed to dissolve, the company could
more easily be dissolved through
a simple unanimous vote, without
the need for judicial intervention.52
Requesting a judicially imposed disso-
lution of a company, like involuntary
judicial dissociation of a member, is
a bold step that may intensify the
acrimony in a business divorce.
14 THE FLORIDA BAR JOURNAL/MAY/JUNE 2021
Powers of the Courts in
Dissolution
Seeking judicially imposed dis-
solution under Florida’s LLC statute
has the effect of immediately giving
substantial control of the company
to the courts. Once a dissolution pro-
ceeding is brought, the court’s powers
become expansive — not limited to
merely requiring or not requiring the
members to dissolve the company.
As a result, requesting dissolution is
not an advisable technique to simply
pressure other members to come to
the negotiating table.
In particular, Florida’s LLC statute
empowers a court, once a dissolution
proceeding has begun, to quickly is-
sue injunctions, appoint a receiver
or custodian pendente lite and take
other actions necessary to protect
the company’s assets.53 Additionally,
upon a showing of sufficient merit,
the court has the power to appoint a
receiver to actually run the business
(not just protect its assets), to initiate
and defend lawsuits on its behalf, and
to dispose of all or part of its assets.54
This also includes the court’s power
to order the receiver to be compen-
sated from the company’s assets.55 The
court’s powers even include a broad
catchall — if there is good cause, it
may employ other remedies that it
“deems appropriate in its discretion.”56
Election Rights Created by
Seeking Dissolution
Requesting dissolution can also
be a procedural trap for the unwary.
A member filing a petition for judi-
cial dissolution immediately creates
statutory election rights for the com-
pany or the other members (if they
choose) to purchase the petitioning
member’s interest. Florida’s LLC stat-
ute provides that the company or the
other members can elect to purchase
the petitioner’s entire interest in the
company for its “fair value.”57
Such an election, if made, must be
filed with the court within 90 days
after the petition for dissolution is
filed. 58 Then, after the election, if
the parties cannot agree to the fair
value of the petitioner’s interest, the
court will make that determination
and direct the purchase upon the
terms and conditions it deems ap-
propriate.59 Also exemplifying the
petitioning member’s loss of control,
once a petition for dissolution is filed
and an election to purchase is filed,
the petitioner may not discontinue
or settle the dissolution proceeding,
or sell or dispose of the interest in
the company, without obtaining court
approval.60 And such court approval is
to be based upon what is equitable to
the company and the other members
— not the petitioning member.61
As previously discussed, the major
benefit of a closely held business is
that the owners maintain control of
the business. Seeking judicial dissolu-
tion puts that control at risk for all the
members — especially the petitioning
member. It may be wise for the parties
to consider a negotiated settlement
before instituting potentially expen-
sive and uncertain litigation.
Pre-Suit Mediation
Pre-suit mediation (in essence
voluntary settlement negotiations
with the assistance of a neutral third
party) can frequently resolve disputes
in closely held businesses. In addi-
tion to thorny transfer of interests
and valuation issues involved in a
business divorce, there are emotional
aspects. Such emotional aspects are
practically never resolved and are
often exacerbated in the public, con-
frontational litigation process. The
format and flexibility of mediation
allows the parties to express and ad-
dress in confidence sensitive, difficult
matters. Even if presuit mediation
does not resolve the entire dispute, it
may serve to either narrow the issues
or create a framework for eventual
final resolution.
Conclusion
The increased pace of closely held
businesses starting and terminating
will likely continue. Consequently,
the need for business divorces will
also accelerate. Business divorce
disputes are as varied as the types of
businesses and the owners’ personali-
ties. The topics raised in this article
are not meant to be conclusive or
all-encompassing — instead, they are
a starting point. As a reminder, it is
particularly important in the context
of closely held businesses that owner
disagreements do not deteriorate
into the destruction of a valuable
business.‰
1
Florida Dep’t of State, Division of
Corporations, Yearly Statistics from
2012-Present (May 11, 2020).
2
There is not a universal definition of
“closely held business,” but it is generally
understood to refer to a company with
a limited number of owners that is not
publicly traded. Delaware law (a leader in
business entity law) defines a closely held
corporation as one with 30 shareholders
or fewer that does not make public offer-
ings of its stock. 8 DEL CODE ANN. §342(a)
(1) and (3). Also, the IRS defines a closely
held corporation as one where half or more
of the ownership is held by five or fewer
individuals. U.S. Department of Treasury,
Internal Revenue Service (Rev. Jan. 2019),
Publication 542: Corporations (Cat. No.
150720).
3
This article is limited to closely held
businesses governed by Florida’s LLC
statute, which is codified at FLA. STAT.
§§605.0101- 605.1108. Florida’s LLC stat-
ute is based substantially on the Revised
Uniform Limited Liability Company Act
of 2006, as amended in 2011, which was
drafted by the Uniform Law Commission.
See Executive Committee of The Florida
Bar Florida Revised LLC Act Drafting
Committee, White Paper for the Florida
Revised Limited Liability Company Act
at 2.22 (Mar. 18, 2013, updated Oct. 1,
2013). On January 1, 2015, Florida’s LLC
statute began applying to all Florida
limited liability companies regardless
of the date it was organized. FLA. STAT.
§605.1108(2). As pertains to corporations
and partnerships, FLA. STAT. Chs. 607 and
620, address disputes among their owners.
While those chapters have some similari-
ties with Ch. 605 — Florida’s LLC statute,
they are not the same and cannot be easily
incorporated into the scope of this article.
That said, some of the concepts from this
article will be applicable to corporations
and partnerships, but specific reference
to those chapters is required.
4
F LA . S TAT . §§608.401 et seq. (Supp.
1982).
5
Olmstead v. FTC, 44 So. 3d 76, 78 (Fla.
2010) (citing Elf Atochem North Am, Inc.
v. Jaffari, 727 A.2d 286, 287 (Del. 1999)).
6 61
Olmstead v. FTC, 44 So. 3d 76, 78-79
(Fla. 2010).
7
It is possible for an LLC to offer securi-
ties in connection with its ownership and,
thus, be governed by federal and state
securities laws. However, this is atypical in
the closely held company context, and the
parties (often with assistance of counsel)
may condition and provide disclosures con-
cerning the sale of LLC interests so that
the sale is exempt from securities’ laws.
8
The owners of an LLC are referred to in
Florida’s LLC statute as “members.” FLA.
STAT. §605.00401. Consequently, for this
article “owners” and “members” are used
interchangeably.
9
FLA. STAT. §605.0102(45).
10
F LA . S TAT . §605.0105(2) states that
“[t]o the extent the operating agreement
does not otherwise provide,” Florida’s LLC
statute governs.
11
FLA. STAT. §605.0105 provides that the
members may enter into an operating
agreement to govern their relationship
within certain limitations.
12
Silver Crown Invests., LLC v. Team
Real Estate Mgmt. LLC, 349 F. Supp. 3d
1316, 1325 (S.D. Fla. 2018) (citing Dinuro
Investments, LLC v. Camacho, 141 So. 3d
731, 741 (Fla. 3d DCA 2014).
13
FLA. STAT. §§605.0105(3) and (4).
14
FLA. STAT. §§605.0410 and 605.0105 (3)
(h).
15
FLA. STAT. §§605.0410(1)(a-f) describes
documents that shall be kept by the LLC.
FLA. STAT. §§605.0410(2)(a)1. and (3)(b)1.
provide what documents are to be made
available to members in both member-
managed LLCs and manager-managed
LLCs.
16
FLA. STAT. §605.0410(2)(a)2. applies to
member-managed LLCs.
17
FLA. STAT. §605.0410(3)(b)2.a. applies
to manager-managed LLCs.
18
FLA. STAT. §605.0411(1).
19
FLA. STAT. §605.0411(2) (according to
this section, the company can only escape
paying the member’s costs if the company
“proves it refused inspection in good faith
because the company had a reasonable
basis for doubt about the right of the
member” to the documents).
20
FLA. STAT. §§605.0502(1). As to these
information rights, there is an exception.
If the company is in dissolution or wind-
ing up, then a transferee is entitled to an
account of the company’s transactions
from the date of dissolution. FLA. STAT.
§§605.0502(3).
21
FLA. STAT. §605.0105(1)(a).
22
Even in a seemingly simple transfer
of assets under the traditional buy-sell
provision, problems can arise. For example,
in P&O Ports Fla. Inc. v. Continental
Stevedoring & Terminals, Inc., 904 So. 2d
507 (Fla. 3d DCA 2005), court intervention
was sought to determine whether an offer
pursuant to a traditional buy-sell provision
could waive an existing noncompetition
restriction of a member making the initial
offer.
23
Additional common provisions are
puts (member has absolute right to sell
interests back to company during specified
time for a preset or formula-based price),
calls (member is required, if requested,
to sell interests back to company during
specified period for a preset or formula-
based price), drag-along rights (majority
member wanting to sell company to third
party can compel minority members to also
sell to third party) and tag-along rights (if
majority members sell to third party, then
minority member has right to have their
interest bought by third party on same
terms).
24
FLA. STAT. §605.0105(2).
25
FLA. STAT. §§605.0601(1) and
605.0602(1).
26
FLA. STAT. §605.0601(1).
27
FLA. STAT. §605.0602(2).
28
F LA . S TAT . §605.0603(1)(b) provides
THE FLORIDA BAR JOURNAL/MAY/JUNE 2021
that if the company is member-managed,
then the member’s duties and obligations
under FLA. STAT. §605.04091 terminate
upon dissociation. FLA. STAT. §605.04091
sets out fiduciary duties of loyalty and
care — many of which cannot otherwise
be eliminated or significantly varied even
through an operating agreement.
29
FLA. STAT. §605.0603(1)(c).
30
FLA. STAT. §605.0603(1)(a).
31
FLA. STAT. §605.0601(3).
32
FLA. STAT. §605.0602(2).
33
FLA. STAT. §605.0602(7) and (11).
34
FLA. STAT. §605.0602(5)(a).
35
FLA. STAT. §605.0602(6)(a)-(c) and FLA.
STAT. §605.04091.
36
Zell, No. 18-CA-182, WL 8106054. Also,
other jurisdictions have emphasized the
importance of factual findings. IE Test,
LLC v. Carroll, 226 N.J. 166, 170 (2016)
(ruling on similar member-expulsion stat-
ute, the appellate court reversed the trial
court’s entry of partial summary judgment
requiring full trial on the merits).
37
Zell, No. 18-CA-182, WL 8106054.
38
FLA. STAT. §605.0603(1).
39
FLA. STAT. §605.1021 and §605.1023(1)
(a).
40
See Kendall Healthcare Grp., LTD v.
Madrigal, M.D., 271 So. 3d 1120, 1121
(Fla. 3d DCA 2019) (references the term
“squeeze-out merger” in connection with
majority owners taking out minority
owners under analogous Florida Revised
Uniform Partnership Act).
41
FLA. STAT. §605.1006(1)(a).
42
FLA. STAT. §605.1061(5).
43
Id.
44
F LA . S TAT . §§605.1065(2)(b)(4) and
605.1067.
45
FLA. STAT. §605.1068.
46
FLA. STAT. §605.1069.
47
FLA. STAT. §605.1006(2).
48
F L A . S T A T . §§605.0105(3)(h) and
605.04091.
49
FLA. STAT. §61.0701(1).
50
FLA. STAT. §61.0702(1)(b) (1.-5.).
51
FLA. STAT. §605.0105(3)(i).
52
FLA. STAT. §605.0701(2).
53
FLA. STAT. §605.0703(3).
54
F L A . S T A T . §§605.0703(4)(a) and
605.0704(1) and (3)(a).
55
FLA. STAT. §605.0704(5).
56
FLA. STAT. §605.0703(4)(c).
57
FLA. STAT. §605.0706(1).
58
FLA. STAT. §605.0706(2).
59
FLA. STAT. §605.0706(4) and (5).
60
FLA. STAT. §605.0706(2).
Id.
AUTHOR
HANK JACKSON
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