Individuals who join forces as a limited liability company are held to specific standards as outlined in Florida statutes and each company’s operating agreements. Wrongful dissociation is an issue that can lead to financial damages to other members of an LLC. Chapter 605 of Florida Statutes lays out the Revised Limited Liability Company Act, also known as the “New Act,” which covers wrongful dissociation and other LLC issues.
What Is Dissociation?
Dissociation occurs when a member of an LLC chooses to withdraw. Prior to 2013, a member had to meet strict standards to be able to dissociate from an LLC. The New Act has several options for a member who wishes to dissociate from their LLC. They may dissociate if their operating agreement outlines a specific situation in which they can dissociate and that event occurs, they sell their interest in a foreclosure sale, the LLC dissolves, or the company merges with another and they are no longer a member. Under Chapter 605, a member can voluntarily dissociate at any time by express will. Additionally, the other members of the LLC can involuntarily dissociate someone via expulsion.
When a Partner Wrongfully Dissociates
If a partner dissociates from the LLC wrongfully, they are not discharged of their liabilities and financial obligations. When a partner leaves the company wrongfully, they are held liable for damage caused to the LLC as a result of their dissociation. Wrongful dissociation occurs when a partner leaves in violation of the company’s operating agreement or if the partner leaves before the LLC winds up.
Damages for Wrongful Dissociation
The remaining members of an LLC can hold the dissociating member liable for damages if the dissociation is wrongful. For example, if the member’s departure causes a loss of income to the LLC, leaves the LLC unable to meet its financial obligations, or otherwise results in financial damages to the company or its members, a court may require the dissociating member to compensate the LLC.
The concept of wrongful dissociation is one that highlights the need for strong contracts. Your operating agreement should be clear about the circumstances under which a member can dissociate and what obligations each member has to the LLC. Strong contracts protect the business entity and each person with an interest in the company. Working with a business lawyer is one of the easiest ways to start your company on the right foot with clear contracts that avoid ambivalent language and minimize your company’s liability.
A successful business begins with enforceable contracts, and Trembly Law is here to help. Reach out to our team at (305) 431-5678 to schedule your consultation.