Is My Florida LLC Stuck with that Contract Joe Signed?
The Florida Revised Limited Liability Company Act (the “Act”) contains a number of interesting provisions (at least they are interesting to nerdy lawyer types). One set of provisions in particular really affects how the LLC deals with the outside world and is an important provision for all Florida LLC owners to know.
Under the Act, all Florida LLCs are deemed “member-managed” unless the articles of organization or operating agreement expressly provide that it is manager-managed. It is extremely common for the operating agreement to contain manager-managed provisions; it is much less common for the articles of organization to contain such provisions. So what, you ask?
The articles of organization are a publicly filed document. The operating agreement is a private document — one that most companies have no desire to share with outsiders. This public/private distinction is critical because of another provision of the Act, which essentially says that a third party is justified in relying on the power of a member to bind the company to a contract or agreement unless that third party “knew or had notice that the member lacked authority.” This concept is called “apparent authority.” If a person has apparent authority with respect to a business entity, such as a corporation or LLC, it means that it is reasonable for a third party dealing with that person to believe that he or she can agree to something on behalf of the company. For example, if someone has a title like “executive vice president” or “chief executive officer,” it is reasonable for a third party to think that the person holding that title has the ability to agree to a business arrangement on behalf of the company.
The language in the Act gives all members of a Florida LLC the “apparent authority” to bind the LLC unless a third party has (or should have) notice that the member actually lacks such authority (i.e., that the member does not in fact have the power to agree to a business arrangement on behalf of the LLC). A publicly filed document provides that notice even if the third party never goes and searches the public records; an operating agreement which is not actually provided to the third party does not provide that notice.
This issue likely isn’t critical for closely held LLCs with a handful of members with a high level of trust for one another. However, as your company grows and you add more members, the issue of “apparent authority” becomes more critical. Consider a scenario where a disgruntled sales employee who has company equity signs a large customer contract on unfavorable terms as a parting gift on their way out the door. That could create quite a mess.
If this issue is a concern for you, you can address it by way of a variety of public filings in Florida, including amending the articles of organization to state that the LLC is manager-managed, or filing a statement of authority to set forth who specifically has the power to bind your Florida LLC to a contract with a third party.
The blog content should not be construed as legal advice.