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COMPANY GOVERNANCE UNDER FLORIDA’S LIMITED LIABILITY COMPANY ACT - page 21 / 28

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2002]

FLORIDA’S LIMITED LIABILITY COMPANY ACT

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shareholders, or to third parties for any act or failure to act, unless the director engaged in a violation of criminal law;83 derived an im- proper personal benefit from a transaction;84 carelessly approved an unlawful dividend or other distribution; or (in a derivative or direct action by a shareholder) acted in “conscious disregard for the best in- terest of the corporation, or [engaged in] willful misconduct.”85

The FLLCA changes the terminology from that used for corpora- tions to that used in LLCs—for example, the word “directors” is changed to “manager” or “managing member”—but otherwise adopts the corporate exculpatory provisions in their entirety.86 Managers

83. Unless the director reasonably believed it was not a violation at the time, or at least had no reasonable cause to believe otherwise.

84. The statute does not define the term “improper personal benefit,” but it does say that transactions that have been cleared by disinterested directors or shareholders are “deemed” not to confer an improper benefit. It also states that the clearance procedures are not exclusive and that other forms of personal benefit may not be improper.

85. FLA. STAT. § 607.0831(1)(b)(4) (2001). In an action brought by a third party, the standard is recklessness, bad faith, a malicious purpose, or wanton and willful disregard of human rights, safety, or property.

Generally, in corporate law, directors do not have fiduciary duties to third parties at all, so it seems somewhat strange to find third party suits included in the exculpation provi- sion. However, two early Florida cases held that directors could be liable to creditors in some circumstances, Beach v. Williamson, 83 So. 860, 863 (Fla. 1919), and Forcum v. Symmes, 143 So. 630, 632 (Fla. 1932), so perhaps the legislature had suits by creditors in mind.

  • 86.

    Section 608.4228, Florida Statutes, states:

  • (1)

    A manager or a managing member shall not be personally liable for mone-

tary damages to the limited liability company, its members, or any other person for any statement, vote, decision, or failure to act regarding management or pol- icy decisions by a manager or a managing member, unless

(a) The manager or managing member breached or failed to perform the duties as a manager or managing member; and

(b) The manager’s or managing member’s breach of, or failure to perform, those duties constitutes any of the following:

1. A violation of the criminal law, unless the manager or managing member had a reasonable cause to believe his or her conduct was lawful or had no reason- able cause to believe such conduct was unlawful. A judgment or other final adju- dication against a manager or managing member in any criminal proceeding for a violation of the criminal law estops that manager or managing member from con- testing the fact that such breach, or failure to perform, constitutes a violation of the criminal law, but does not estop the manager or managing member from es- tablishing that he or she had reasonable cause to believe that his or her conduct was lawful or had no reasonable cause to believe that such conduct was unlawful.

2. A transaction from which the manager or managing member derived an im- proper personal benefit, either directly or indirectly.

  • 3.

    A distribution in violation of s. 608.426.

  • 4.

    In a proceeding by or in the right of the limited liability company to procure

a judgment in its favor or by or in the right of a member, conscious disregard of the best interest of the limited liability company, or willful misconduct.

5. In a proceeding by or in the right of someone other than the limited liability company or a member, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and will- ful disregard of human rights, safety, or property.

(2) For the purposes of this section, the term “recklessness” means acting, or failing to act, in conscious disregard of a risk known, or so obvious that it should

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