A number of states - most notably California, which bans most post-employment non-competes other than in connection with the sale of a business - have adopted significant limitations on the use of non-competition agreements, and Florida's non-compete law is the topic of frequent criticism as anticompetitive, an unreasonable limitation on employee mobility and potentially causing the loss of a person's livelihood. Notably, Florida courts are specifically instructed under the law to not consider any individualized economic or hardship that might be caused to the person against whom enforcement is sought. This has led other states to view Florida's non-compete statute as against their own public policy when asked to enforce Florida non-compete agreement.
In October, Senators Chris Murphy and Todd Young introduceda bi-partisan bill called the Workplace Mobility Actthat would impose a federal limit on the use of non-compete agreements by employers to only sales of businesses or dissolution of partnerships, giving employees a private right of action, and giving enforcement authority to the Federal Trade Commission and the Department of Labor. While the bill has wide-ranging support, similar bills have failed in recent years.
As Jocelyn Reikie of Deal Law Wire points out, there is finally some data to back up that trend. The American Bar Association’s Private Target Mergers and Acquisitions Deal Points Study for the first time has included an analysis of the use of representations and warranty insurance ("RWI") in its review of publicly available M&A purchase agreements in the limited context of the purchase of private companies by public companies. The results show that 29% of those purchase agreements in 2016 and the first part of 2017 contemplated the use of RWI, usually in the context of buy-side policies which provide insurance to the purchaser. The study also showed that in deals using RWI, the indemnity basket (basically, the deductible applied before any recovery under the indemnity) and the cap (the maximum liability) tended to be lower.
While the limited scope of this study also raises a number of questions - among them, does RWI insurance enable sellers to free up funds from post-sale escrow arrangements? - the widespread availability of RWI insurance should provide an additional tool to help parties reach agreement in otherwise complex transactions.
Since it was first published in 1983, Best Lawyers has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. 83,000 industry leading attorneys are eligible to vote (from around the world), and Best Lawyers has received almost 10 million evaluations on the legal abilities of other lawyers based on their specific practice areas around the world. For the 2018 Edition of The Best Lawyers in America , 7.4 million votes were analyzed, which resulted in more than 58,000 leading lawyers being included in the new edition. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor. Corporate Counsel magazine has called Best Lawyers "the most respected referral list of attorneys in practice." Best Lawyers ® and The Best Lawyers in America © are registered trademarks of Woodward/White, Inc.
On March 6, 1961, The Reverend Dr. Martin Luther King, Jr. spoke at Detroit’s Central Methodist Church. “We must learn to live together as brothers or perish together as fools.” Dr. King was focused on the need for interdependence within humanity. “Everything that we see is a shadow cast by that which we do not see.” King recognized that most people take their environment and their expectations for granted. We see events and people through the filter of our own particular experiences and assumptions, and assume that everyone else has the same needs. We all live in our own cocoons, with a self-assurance based on our individual limited exposure to the rest of the world.
As you may know, I co-founded one of Central Florida’s first collaborative coworking spaces on the principle that when people work together as a community, in an open and diverse environment, they lift each other up and create greater understanding of the needs others, which in turn spurs new opportunities for creation and innovation, for growth and scaling up.
I’ve often talked of density as a Petri dish for innovation. But density alone is not sufficient, either as a tool for societal benefit or for entrepreneurship. Density increases the likelihood of collisions. Sometimes those collisions can be serendipitous. But as we’ve seen in the world lately, sometimes collisions can be tragic. While there are benefits to working and living in close proximity – either physically or in virtual social networks -- there’s also risk inherent in institutional and social isolation among groups of like-minded people. People can be more interested in defending their points of view and their own domains, rather than working together and understanding what it’s like to be the other and how to help others prosper so that everyone can succeed together.
That’s the dark underbelly of density – the possibility that, unless density is accompanied by diversity and a willingness to embrace that diversity, it may devolve into groupthink. Diversity may be more likely where there is significant density, but it’s not a given. Congregations tend to reinforce beliefs and ideas, and loud voices tend to drown out the softer ones. If an environment encourages like people – whether economic class, religion, profession, social group, race, whatever – to congregate, you don’t end up with collaborative innovation. You sometimes end up with herds of sheep. You sometimes end up with packs of wolves.
This type of groupthink problem exists in all types of homogeneous groups, whether we’re talking about politics or social issues or product development. Orthodoxy becomes an absolute. Deviation isn't allowed. “This is the way we’ve always done things,” they say. Those cultures – social and corporate – often stagnate, not necessarily because of bad intentions or a lack of motivation or skill, but because prior success is no guarantee of future results in a world where people change and landscapes shift on an ever-accelerating basis, and sometimes you can’t see those changes on your own. You create your own shadow.
But the promise of America – and its greatest political and social innovation – is that it doesn’t have to be that way. John Adams, Thomas Jefferson and Benjamin Franklin’s original committee to design the Great Seal of the United States gave us the phrase “ E Pluribus Unum ” – out of many, one. If America is a melting pot, or at least a mosaic, its strength as a nation comes from our diversity – from learning to live together, to work together, to learn from each other, with the shared goal of life, liberty and the pursuit of happiness. That same promise and innovation has driven American know-how and economic opportunity. When we see things through other people’s eyes, we can put our assumptions aside. Often that leads to new understanding and to new opportunities.
Many of our parents taught us that we shouldn’t judge someone until we’ve walked a mile in their shoes. That’s what diversity does for us. It is the pair of shoes. Those shoes are an opportunity and a blessing that enable us understand what matters to other people, and they helps us all negotiate pathways to getting along. When we share a road, we have to find a way, together.
The same philosophy applies to innovation.
When I met Jeff Hoffman, one of the founders of Priceline.com, a few years ago, he spoke about how the most innovative people find ways to remove their personal filters and open up their minds. They approach the world like children, curious and open to wonder and knowledge, looking at things outside their every-day domain. They’re willing to see things from another point of view and question their own assumptions. Hoffman called the process “information sponging” – taking time every day to soak up information from a world bigger than their own. Sam Walton, the founder of WalMart, did it by hanging out in Arkansas diners, talking to customers about their own needs. Hoffman talked about following that model and going directly to the “regular people” that were the target market of discount airline seats to validate the Priceline business model – and didn’t get dissuaded by the Wall Street Journal writers who couldn’t understand a consumer interest in Priceline.com’s “name your own price” model.
Through a quarter century of working with entrepreneurs, I’ve seen growth and innovation derive not simply from place and tools, but from human capital. The effect compounds when a tapestry of people come together and engage with each other with open minds. Free trade in ideas results in creative sparks and growth.
Some of my favorite entrepreneurial clients thrive on a free trade in ideas, and have turned that into success in ways which solve massive problems or create better communities. They bring shelter to forgotten populations, and listen to those communities’ needs to drive solutions to other problems. They adapt nineteenth century resources to space-age technologies. They collaborate among research institutions to turn theoretical chemistry and biology into life-saving medications. Sometimes they give travelers better ways to share memories and create new ones. They’re solving for different needs, but they’re leading the way by listening first and by opening their eyes to things they hadn’t seen before.
It may seem misplaced to use the 50th anniversary of MLK’s assassination to turn his ideas about social justice into a conversation about how entrepreneurs succeed. But Dr. King had important insight into human nature that’s worth remembering and taking as inspiration, no matter what you’re trying to achieve. We’re better when we look at the ways people in other walks of life do things, and recognize their needs, their pains, the difficulties they may face and the ways that they resemble and differ from our own; when we question our own prior assumptions; when we learn something new; and when we find solutions by employing that new knowledge to create something better. When we look out from the shadows that often blind us, we have the power to rise up and meet challenges in ways we never expected.
The new rules eliminate the party previously known as a “tax matters partner” and instead create a new role of “partnership representative” with greater responsibilities who may be designated by the partnership. The partnership representative now has the sole responsibility to act on behalf of the partnership in dealings with the IRS in connection with an audit. The partnership will be bound by the actions of the partnership representative. Accordingly, the partners or members need to select the partnership representative carefully.
Even more significantly, under the new rules, the IRS will typically assess most partnerships (other than certain qualified small partnerships with fewer than 10 partners), rather than individual partners (or LLC members), for imputed underpayments. This change can significantly impact partners, particularly where ownership percentages or partners have changed in intervening periods, as partners as of the time when the audit is finalized could bear the cost of additional taxes that relate to earlier periods, unless partnership or operating agreements address these issues.
The new rules provide for some limited exceptions for certain eligible partnerships to elect out of the new rules. However, that election must be made annually.
Note that, although we regularly work with clients in the formation and structuring of partnerships and limited liability companies, the firm does not practice tax law, and you should coordinate with your tax professionals with respect to any tax advice. We are happy to work with our client’s tax professionals to ensure that your partnership-taxed entity structures properly conform to the new rules and address our client’s business and tax needs.
Many businesses do not realize that there are strict guidelines that an employer must follow if an intern is to be considered a “volunteer” such that wage and hour laws - such as minimum wage and overtime rules - don’t apply. The U.S. Department of Labor specifically provides a 6-point test (based on prior court rulings) which for-profit businesses must follow to stay within the law for unpaid interns. The following bullet points include those rules as well as other guidelines for utilizing unpaid interns. Some states may also have additional requirements.
• Interns must be given tasks that are beneficial for them.
• Interns must not be asked to run personal errands for the employer.
• Interns must be closely supervised by a staff member.
• Interns must receive training similar to that which would be given in an educational setting.
• The intern cannot displace staff employees.
• The employer cannot directly benefit from the intern’s work.
• Both the intern and the employer must be made aware that the internship may not result in an employment offer.
• The internship should be for a fixed time period, established at the beginning of the internship.
• All parties understand the terms and job tasks of the internship.
The terms of the internship should also be in writing.
It is equally important for a business to understand its own specific needs, and to address those needs in any agreement with its interns. For example, any business that involves proprietary information should make the intern aware of those issues and include confidentiality and non-disclosure protections within its internship agreement.
We can help you put together an internship program that works best for your business while staying within the requirements of the law.
The authors note the importance of VC investments in startups, and point out that, while IPOs are the most studied exit strategy, largely because they are publicly reported, trade sales of the venture are much more common. Identifying reasons for potential resistance and various “carrots” or bribes, such as bonuses, as well as “sticks,” such as termination or blacklisting, that VCs have available to encourage entrepreneurs, founders and management to favor a trade sale, the authors conclude:
- We find, in our sample, a relatively heavy reliance on carrots. Carrots are used in 45% of the firms, with carrots averaging 9% of deal value in these firms. We also find some use of sticks, such as threats to blacklist founders who refuse to cooperate and attempts to undermine common shareholders’ voting rights. But the overt use of these sticks is relatively infrequent.
The Climate Challenge, which is co-sponsored by the Environmental Protection Agency, the ABA Law Practice Management Section and the ABA's Section of Environment, Energy, and Resources, is designed to encourage law offices to take specific steps to conserve energy and resources, as well as reduce emissions of greenhouse gases and other pollutants.
This designation underscores the firm's commitment to the preservation of our resources and minimizing our environmental footprint.
Most of the steps taken by the firm are second-nature to us. It's all the stuff mom taught. Turning off lights when you're not in an office or conference room. Taking advantage of windows and using natural lighting. Only printing documents when you need to (and printing double-sided as the default when possible). Avoiding waste, whether it is energy or disposable cups. Recycling what you use, from paper (shredded, of course) to print cartridges. Raising the thermostat in the summer and when you leave the office. Turning off the air conditioner on those rare cool days.
Modern technology also lets us take sustainability a step farther. Taking notes and marking-up agreements on a tablet. Utilizing electronic communication for agreements and correspondence and billing - while always maintaining the confidentiality of attorney-client privileged information. Using electronic banking.
In short, principles of sustainability are central to everything we do, and we believe that translates into more efficient, effective and ethical representation of our clients.
That commitment also extends to the clients that we represent. The firm's clients include the nation's first carbon neutral hotel group, as well as one of the leaders in Central Florida's sustainable local agriculture industry which provides "seed-to-source" services including growing, distribution, management and commercial design and development.
Mark Scheinblum's service on the Board of the Central Florida Zoo is driven by the concern for species and habitat preservation, conservation, discovery and education. Together with his wife, they've turned their backyard into a National Wildlife Federation Certified Wildlife Habitat®. Similar motivations inspired Mark's formation of Ear Buds Organic Entertainment - the desire to sustain local and independent music creation and build a greater sense of community.
The firm will continue to look for ways to improve the ways it relies on resources, including waste reduction and energy conservation.
Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Because Best Lawyers is based on an exhaustive peer-review survey in which almost 50,000 leading attorneys cast nearly five million votes on the legal abilities of other lawyers in their practice areas, and because lawyers are not required or allowed to pay a fee to be listed, inclusion in Best Lawyers is considered a singular honor. Corporate Counsel magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”
Mark Scheinblum has been listed in Best Lawyers® since 2010.
The New LLC Act will also impact all existing Florida LLCs. LLCs formed prior to January 1, 2014, can continue to operate under the existing LLC Act until January 1, 2015. On that date, however, the current LLC Act is repealed and the New LLC Act will apply to all Florida LLCs. Existing LLCs may also make an election to be governed by the New LLC Act prior to January 1, 2015. Members and managers of existing LLCs should use this transition period to review their existing LLC Operating Agreements and determine whether the changes made by the New LLC Act require any amendments in order to properly give effect to the intentions of the parties.
Background
Since the introduction of the limited liability company in the 1980s, the LLC has become an essential part of the business landscape. The LLC provides flexible structuring, allowing for pass-through tax treatment (like a partnership) or, at the members’ election, corporate tax treatment, limited liability like that afforded to corporate shareholders, and the ability of members to structure the operations in almost any manner that best suits their needs.
Florida has a long but varied history with LLCs. Florida was at the forefront of the LLC movement, having adopted the nation’s second limited liability company statute in 1982, five years after Wyoming adopted the first LLC statute in the U.S. However, confusion over the IRS’s tax treatment of LLCs reigned for years, and no other state enacted LLC legislation until after 1988, the year the IRS issued a revenue ruling that Wyoming-style LLCs would be taxed as partnerships. Other states began enacting LLC statutes, and by 1996, most states had adopted their own LLC statutes.
Even then, however, LLC use in Florida lagged. Despite modifications in the Florida LLC statute in 1993, the application of Florida income tax to LLCs kept the use of LLCs on the sidelines.
When Florida’s corporate income tax was repealed for LLCs in 1998, Florida’s LLC statute was revised, and the new LLC act was adopted in 1999, with amendments to follow in 2002. That LLC Act, set forth in Chapter 608 of the Florida Statutes, has governed Florida limited liability companies until now. Today, LLCs are the entity of choice for business formed in Florida. There are over 700,000 LLCs currently organized in the state. In 2012, almost 170,000 new LLCs were formed in Florida, far eclipsing the number of corporations incorporated in the state.
The New LLC Act
The New LLC Act modernizes the LLC law in Florida, making it more flexible while also retaining provisions from the existing LLC act that had become important to Florida LLC users, as well as incorporating provisions from other influential LLC and corporate statutes. Key provisions of the New LLC Act include the following:
Electronic Signatures . Electronic signatures are expressly permitted. Section 605.0102(62).
Non-Waivable Provisions . Like the existing LLC act, the New LLC Act is a “default” statute, meaning that in most cases, the members of an LLC can agree in their operating agreement to an alternative framework which supersedes specific provisions in the statute. This remains the case under the New LLC Act, but the new law does expand the list of non-waivable provisions that may not be waived, altered or otherwise overriden by the LLC’s operating agreement or other agreements among the members. These new non-waivable provisions which will be enforced regardless of the provisions of the operating agreement include, among other provisions, (a) the power of a member to dissociate from the LLC; (b) the right of a member to approve a merger, interest exchange or conversion in certain contexts; and (c) any restrictions on the rights under the New LLC Act of any person other than a manager or a member. Accordingly, it will be important to update existing operating agreements to address these non-waivable provisions. Section 605.0105(3).
Binding Effect on Non-Signatories . Any LLC member is bound by the Operating Agreement even if it is not signed by them. Section 605.0106(2).
No Shelf LLCs . An LLC must have at least one member upon formation. Section 605.0201(4).
Dissociation by a Member . Under the New LLC Act, a member will have the non-waivable right to dissociate from an LLC, but the dissociation does not trigger a buy-out right. Instead, the dissociated member only will have the rights of an un-admitted transferee (with certain exceptions). Note, however, that an operating agreement may provide for conditions for dissociation such that dissociation in violation thereof is “wrongful,” and the member so dissociating from the LLC may be held liable for damages resulting therefrom. Section 605.0216.
Statements of Authority . The new statute permits “Statements of Authority” which provide constructive notice of an individual’s authority, status or position within the LLC, which can be filed with the state and is good for five years, unless revoked (by a statement of denial). Section 605.0302.
Creditor-Enforced Capital Contributions . Creditors will now have the right to enforce capital contributions by members. Section 605.0403(4).
Elimination of Manager-Members . The existing act allowed for “manager-members,” a designation that was fraught with confusion. This has been eliminated in the New LLC Act, such that an LLC must be “manager-managed” or “member-managed.” (By default, all Florida LLCs are considered to by member-managed onless otherwise set forth in the articles of organization or operating agreement.) Section 605.0407.
Non-Competition . Under the New LLC Act, managers of manager-managed LLCs, and all members of member-managed LLCs, will be subject to a non-competition covenant. This is a waivable provision, and LLC managers and members will need to take due care to ensure it is properly addressed or waived in operating agreements. Section 605.04091(2)(c).
Charging Orders . A charging order is the sole remedy for creditors of a multi-member LLC; for single-member LLCs, a creditor must establish that a charging order is not a sufficient remedy in order to be able to foreclose on an interest. Section 605.0902.
Transacting Business in Florida . Owning income-producing property will expressly constitute transacting business in Florida, such that qualification to do business in Florida will be required.
Appraisal Rights . Appraisal rights - rights to have a fair price for an equity interest determined by a judicial proceeding, and to have the entity purchase the interests at such price - are expanded by providing additional events which would trigger an appraisal, but such rights may be waived or eliminated in an operating agreement so long as such waiver or elimination is approved by the affected member or group of members. Section 605.1006.
Interest Exchanges . Interest exchanges will be expressly permitted. Section 605.1031.
Domestication . Domestication of non-U.S. entities will now be permitted under the New LLC Act. Section 605.1051.
Conclusion
Any new LLC should be formed in compliance with the New LLC Act. In addition, members of existing LLCs should consult with counsel in order to evaluate whether existing operating agreements should be revised in order to address the changes in the New LLC Act.
