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COMPANY GOVERNANCE UNDER FLORIDA’S LIMITED LIABILITY COMPANY ACT - page 25 / 28

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2002]

FLORIDA’S LIMITED LIABILITY COMPANY ACT

77

grounds for involuntary dissolution are deadlock, waste (and not just any old waste, but “material” waste), illegality, or fraud.98 The Flor- ida courts have shown no inclination to stretch the definition of ille- gality to include seriously unfair conduct,99 let alone to enforce the reasonable expectations of the parties.100

In any event, litigation requires fault on the part of the majority and will not assist the shareholder who merely decides that her time and money would be better spent elsewhere.101 Sensible attorneys therefore draft shareholder agreements that permit a “no fault” di- vorce and, perhaps, assure the minority shareholder a greater voice in the firm before divorce becomes necessary.102

3.

The FLLCA

Attorneys advising parties who will have minority interests in a Florida LLC had better dig out the forms they used to use for closely held corporations, because the voting and exit provisions of the FLLCA are taken more or less directly from the corporate model.103 In one respect, being a minority member is even worse than being a minority shareholder. Shares can be sold if anyone is fool enough to buy them,104 or at least left to one’s heirs, which may be particularly useful if one dislikes one’s heirs. LLC memberships are not transfer- able, period.105

    • 98.

      FLA. STAT. § 607.1430(3) (2001).

    • 99.

      COHN & AMES, supra note 24, at 6, 167-68.

  • 100.

    The FBCA also gives the corporation or the other shareholder(s) the option to buy

out the dissolution-seeking dissident for “fair value,” a term which is not defined. FLA. STAT. § 607.1436. If it means “liquidation value,” then the majority shareholder(s) can ap- propriate the going concern value, unless liquidation value includes the possibility that the entire corporation could be sold as a going concern. COHN & AMES, supra note 24, at 171- 72.

In any event, this buyout right operates solely at the election of the shareholder(s) resist- ing liquidation. The unhappy shareholder who petitions for dissolution is writing a call op- tion with an uncertain strike price and does not even get an option premium.

101. J.A.C. Hetherington & Michael P. Dooley, Illiquidity and Exploitation: A Proposed Statutory Solution to the Remaining Close Corporation Problem, 63 VA. L. REV. 1 (1977).

102. Hunter J. Brownlee, The Shareholders’ Agreement: A Contractual Alternative to Oppression as a Ground for Dissolution, 24 STETSON L. REV. 267 (1994). On the other hand, for some kinds of businesses, for example high-tech startups, a no-exit rule may make sense. Edward B. Rock & Michael L. Wachter, Waiting for the Omelet to Set: Match- Specific Assets and Minority Oppression in Close Corporations, 24 J. CORP. L. 913 (1999).

103. Instead of one share/one vote, the default rule in the FLLCA is voting in propor- tion to the profit interest. Thus, the “majority-in-interest” rules. FLA. STAT. § 608.4231. This is certainly a substantial improvement over the previous FLLCA rule, in which the defaults were set by capital contribution. FLA. STAT. § 608.4231 (pre-1999). However, it stands in sharp contrast with Section 404 of the Uniform Limited Liability Company Act, which gives each member equal rights in the management and control of the business.

  • 104.

    Assuming no restrictions on transfer.

  • 105.

    A member may assign an interest in the membership, but that does not carry with

it the right to become a member. Assignees have no rights other than the right to receive distributions.

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