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

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FLORIDA STATE UNIVERSITY LAW REVIEW

[Vol. 30:53

who try a “do-it-yourself” approach,113 or who use the services of a general practitioner unaware of the need for a buyout agreement, are likely to find themselves unpleasantly surprised, and quite possibly involved in litigation, down the road.

My preference for the Model Act provisions is based only in part on efficiency (reducing transaction costs). There is also a non- efficiency based normative component.

First, as written, the statute imposes a transaction cost tax on everyone who uses it, either in the form of up-front fees to profes- sionals or in the discounted cost of anticipated future litigation ex- penses.114 Second, the discounted cost of future litigation must be higher than the cost of planning to avoid it, or no one would make planning expenditures.

Thus, people who do not use professional assistance are paying a higher tax than those who do use professionals, although it is a hid- den tax in the sense that they do not know that they are paying it when they buy a Florida LLC. Further, I assume that many, and probably most, of the people buying this product without professional assistance are doing so because they are sufficiently poor to make fee payment problematic.

The only apparent reason for the statute’s no exit default is to fa- cilitate estate planning. I do not begrudge form entrepreneurs a re- turn on their investment.115 Nevertheless, it is regressive to impose a tax on all form consumers, and a higher tax on those relatively poor consumers who “do it themselves,” in order to benefit people wealthy enough to need estate planning. In my view, regressive taxes are se- riously unfair. For that reason alone, the statute should be amended to provide either a buyout or a liquidation right (or both) as the de- fault.

113. This assumes, of course, that unrepresented parties will not negotiate a buyout agreement because they will either not know what the default rule is or will not under- stand why it matters.

114. Everyone incurs this cost, whether or not they actually wind up litigating. Dis- counting requires only the possibility of litigation, not the certainty.

115. While economists see transaction costs as a deadweight loss, lawyers and ac- countants see them as a livelihood.

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