Page 36 - Akerman | 2016 Guide to Doing Business in Florida

3.2.5 Limited Liability of Members and Managers

The FRLLCA provides that a member or manager of an LLC is not liable for a debt or obligation
of the LLC and is not liable to the LLC or any other member or manager for such person’s
good faith reliance on the provisions of the LLC’s Articles of Organization or Operating
Agreement. This provision shields members to the extent that liability may exceed their
investment in the LLC and prevents them from being obligated to the LLC, other members,
managers, or creditors of the LLC for obligations not assumed through the member’s capital
contribution or other investment.

3.2.6 Remedies of Member Creditors: The “Olmstead Patch”

Traditionally, Florida law followed the “pick your partner” principle in regards to LLCs, providing
that members of Florida LLCs had the right to determine their partners in business. Judgment
debtors of LLC members were limited to grants of charging orders, which gave such debtors
an assignment of the member’s economic interest in the LLC while leaving the non-economic
powers in the hands of the debtor.

In Olmstead v. Federal Trade Commission, 40 So. 3d 76 (Fla. 2010), the Florida Supreme
Court ruled that Florida law permits a court to order a judgment debtor to surrender all right, title
and interest in a single-member LLC to satisfy an outstanding judgment interest against the
member of the single-member LLC. The Court determined that an interest in an LLC is a type
of “corporate entity” and was personal property, akin to corporate stock. This raised concern
that the judgment could apply to multi-member LLCs as well as single-member LLCs, and that
judgment debtors could foreclose upon all of a member’s interest in a multi-member LLC,
violating the “pick your partner” principle in multi-member LLCs.

In response to the decision in Olmstead, an effort was led by the Florida Bar to propose a
“patch” to Florida’s LLC Act to remove the uncertainty that was created. The patch, now
codified in § 605.0503 of the FRLLCA, provides that, with respect to multi-member LLCs in
Florida, a charging order is the “sole and exclusive remedy” by which a judgment creditor of a
member or an assignee of a member may satisfy a judgment from a judgment debtor’s interest
in an LLC or rights to distributions from a member’s interest in an LLC. The statute makes it
clear that foreclosure of a judgment debtor’s interest in a multi-member LLC is not allowed.
With respect to single-member LLCs, while a charging order is expressed to be the sole and
exclusive remedy of a judgment creditor, if the judgment creditor can show that, under a
charging order, distributions will not satisfy the judgment in a reasonable period of time, the
court may order a foreclosure sale of the LLC interest, pursuant to which the purchaser in such
a sale becomes the member of the LLC and the judgment debtor’s membership interest
ceases.

3.2.7 Capitalization and Distributions

An LLC offers the same flexibility in raising capital as a for-profit corporation. Members may
contribute tangible property or services to the LLC, and such contributions may include
property, services, cash, or a promissory note or other obligation to contribute such property or
services in the future. A promissory note must be in writing and signed by the member
contributing the cash, property or services. Unless otherwise provided in the Articles of
Organization or Operating Agreement, if a member promises in writing to make a certain
contribution, the member is obligated to the LLC to perform that enforceable contribution
promise, even if the member is unable to perform because of the member’s death, disability or
any other reason.

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