Archives for February 2014

How Do You Define Confidence? Here’s One Way …

ConfidenceSaw this on the internet the other day and it rang true to me. For me, one way of defining confidence as an attorney is being able to respond to a client’s question by admitting, without any shame, “I don’t know … ” but being able to ‘confidently’ add “however, I can get that answer for you.” I recall an instance when, as a young associate at a large firm, I whined to my supervising partner, “You never explain anything to me. I feel like I’m always trying to figure everything out.” He looked at me, perplexed and a little annoyed, and said, “We’re ALL just trying to figure everything out.”

Lesson learned. NOBODY has all the answers.

When hiring an attorney don’t be dissuaded by one who says “I don’t know.” Instead, if he or she has the other characteristics you’re looking for … solid reputation, significant experience, strong work ethic, a personality you’re comfortable with … be encouraged by their willingness to be open and honest and rely on their determination to doggedly pursue the answer. Remember, the “law”, like the “internet”, is a massive thing. Nobody knows it all. BH

LLCs: GOT ONE? NEED ONE? LOANING MONEY TO ONE? Pay attention to these new rules!

PayAttentionThe new Florida Revised Limited Liability Company Act (the “New Act”) became effective January 1, 2014. If you have an existing LLC, are forming a new LLC or, for you commercial lenders out there, are loaning money to an LLC, you should pay attention to the changes that have been implemented.

Why bother with a New Act?

Theoretically, the New Act is intended to make Florida a more attractive state in which to form an LLC by making the rules here more consistent with those of other states, with other Florida business entity statutes and with court decisions clarifying the intent and effect of the Florida statutes applicable to LLCs.

Whatever. Why do “I” need to know this?

Well, this is starting out just peachy, isn’t it? LLCs have been by far the most common ‘corporate’ vehicle over the past couple of decades by which investors and business owners have avoided personal liability for claims involving their properties and businesses. They are easy to form, easy to operate and have relatively little cost and administration involved while still protecting their owners from personal liability. Heck, it’s almost the only entity we form in our office any more. However, as a relatively new type of entity, LLCs haven’t had the extensive vetting over time as have corporations, partnerships, limited partnerships and other more time-tested entities. But, enough time has passed now for lots of LLCs to have been organized, dissolved, sued, challenged, bankrupted, bought, sold and so on that the original rules are now being refined and updated to be more consistent with those activities and decisions. Odds are, if you formed a business or bought commercial property using an entity in the last 15 to 20 years, you did it via an LLC. So you need to know the rules.

Ok. Fine. God this stuff is boring. What’s changed? And keep it brief.

Hmmph. Well, for LLC owners, for one thing, you shouldn’t be calling yourself a “Managing Manager” any more. You’re either a “Member” or a “Manager.” The New Act does away with the concept of a managing member. That’s been one of my personal pet peeves in the past, in part because the online forms on Sunbiz that people use to form LLCs themselves seems to encourage the use of the title “Managing Member” no matter whether the LLC is intended as “Member-Managed” or “Manager-Managed” LLC. Legally, that creates confusion (at least in my mind) because by statute LLCs must either be Member-Managed or Manager-Managed. The New Act says if you call yourself a “Managing-Member” then you are deemed to be a Member that is managing a Member-Managed LLC. The difference? If your LLC is a Member-Managed LLC, you may be creating voting rights and management authority in other members of the LLC, intended or not. Clearly define your LLC as either “Member-Managed” or “Manager-Managed” to avoid unintended consequences.

That took way too long and was way too confusing and I’m tired of reading this crap. What else? In bullet form, please.

OK, OK! Geez …

–        Operating Agreements: I just want to say, most importantly, that the role of the LLC Operating Agreement remains critical. If you are forming an LLC, have a solid, written Operating Agreement! Always recommended and the New Act hasn’t changed that. The New Act (like the Old Act) only specifies certain rules that govern the LLC in the absence of an Operating Agreement. For clarity, have an Operating Agreement. Lenders, demand a copy of your LLC Borrower’s Operating Agreement and review it carefully. That’s your road map to avoiding mistakes!

 –        Other Stuff: The New Act contains other changes related to the dissociation of a member, the exchange of membership interests, assignment of a member’s “transferrable interest” (i.e. the right to receive distributions but not including any voting or managerial rights,) the ability to have non-economic members (members that have the right to vote, but have neither an obligation to contribute, nor a right to receive distributions of, capital) and service of process. I’ll spare you the details because I can tell you’re getting drowsy.

–        Lenders: See “Operating Agreements” above. Review the Operating Agreements of your borrowers! Only then will you know the proper affidavits, consents and resolutions that are required to comply with the LLCs governing documents. Remember, the Florida Statutes provide that the CEO, President or Vice-President of corporation can sign documents and bind the corporation and you are entitled to rely on that statute as ensuring your loan documents are enforceable against the corporation. However, there is no corresponding statute that does exactly that for an LLC. You MUST review the Operating Agreement.

Dang. Lost you, didn’t I?

Your eyes have glazed over and you’re semi-comatose. Hey, some of us find this stuff (semi-) interesting! In CONCLUSION, if any of these issues might affect your LLC or your lending practices consult your attorney! If you’re an LLC owner, it may be a good idea to have your existing Operating Agreement reviewed by your attorney (hey, maybe that’s me!) in order to identify any potential issues and to update it to be consistent with the New Act. If you’re a commercial lender, it may be a good idea to have your attorney (hey, maybe that’s me!) review your lending/loan closing practices to make sure you are abiding by the governing documents of the entities to which you make loans to make sure you aren’t making mistakes that could jeopardizing the enforceability of your loan documents and, potentially, your security interest.

I’ll stop now. Have a nice nap. But thanks for reading!

BH