Two members, equal votes, and a decision the company cannot avoid. Florida’s LLC statute supplies three exits: judicial dissolution, a court-supervised buyout, and the deadlock provision in the operating agreement.
Grounds for Dissolution
A member or manager may ask the circuit court to dissolve the company if it is established that:
- the conduct of all or substantially all of the company’s activities and affairs is unlawful;
- it is not reasonably practicable to carry on the company’s activities and affairs in conformity with the articles of organization and the operating agreement;
- the managers or members in control have acted, are acting, or are reasonably expected to act in a manner that is illegal or fraudulent;
- company assets are being misappropriated or wasted, causing injury to the company or, in a proceeding by a member, to one or more members; or
- the managers or members are deadlocked, the members are unable to break the deadlock, and irreparable injury to the company is threatened or being suffered.
Section 605.0702(1)(b), Florida Statutes. An operating agreement cannot vary these grounds, but a deadlock resolution mechanism does not count as varying them. Section 605.0105(3)(i).
The Buyout Election
When a member petitions under section 605.0702(1)(b), the company, or failing that one or more other members, may elect to buy the petitioner’s entire interest at fair value. Section 605.0706(1). The election may be filed within 90 days after the petition, or later if the court allows, and it is irrevocable unless the court finds it equitable to set aside or modify it. Section 605.0706(1) and (2). Once an election is filed, the case may not be discontinued or settled, and the petitioner may not sell the interest, without court approval, unless the sale is under a deadlock sale provision. Section 605.0706(2).
If the parties do not agree on value and terms within 60 days after the first election, the court determines fair value as of the day before the petition was filed, or as of another date the court finds appropriate. Section 605.0706(3) and (4). The court may order installment payments when equity requires, with security, and may award the petitioner reasonable counsel and expert fees if the petitioner had probable grounds for relief. Section 605.0706(5).
The Operating Agreement Comes First
A deadlock sale provision in the operating agreement resolves the deadlock instead of dissolution or a court-ordered buyout if it is initiated before the court determines that grounds for dissolution based on deadlock exist, and it is then carried out under its terms or the members’ agreement. Section 605.0702(2)(a). The statute defines the term broadly to include a redemption or purchase and sale of interests, a governance change, a sale of the company or substantially all of its assets, or a similar mechanism that breaks the deadlock. Section 605.0702(2)(b).
What Members Should Do Now
Read the operating agreement before a dispute, not after. A workable deadlock clause names the trigger, allows a short negotiation or mediation period, and sets a buyout price or valuation method the members can actually fund. Without one, the outcome is left to a judge.
Haft Law Group represents members and companies in Florida business disputes and drafts operating agreements built to avoid them. Attorney Scott Haft is also a Florida Supreme Court certified circuit civil mediator.