In Florida, Your LLC Operating Agreement Means What It Says

In one Florida real estate dispute, investors lost their remaining ownership stake in a Miami Beach hotel condominium project after failing to fund capital calls. In another, a husband transferred an LLC’s Miami property to a lender without his wife’s signature as their marriage unraveled. The transfer was upheld.

Both outcomes turned on the language of the LLC’s operating agreement. For Florida real estate investors, the operating agreement provisions on funding, decision-making and remedies deserve as much attention as the purchase price.

What a Florida LLC Operating Agreement Controls

Real estate investors often hold property through a limited liability company. Its owners are called members. The operating agreement sets the rights and responsibilities of the members, including who makes decisions, who funds shortfalls, how profits are allocated and how an owner can exit. I like to say that the members are in the honeymoon stage at the start of a venture, focused on the investment’s upside potential. However, when the deal comes under pressure, the operating agreement is often the only document that matters.

Florida law gives members broad freedom to set the operating agreement terms. The Florida Revised Limited Liability Company Act states that its intent is to give “the maximum effect” to freedom of contract and to the enforceability of operating agreements. Fla. Stat. § 605.0111. The statute’s default rules apply only where the agreement is silent, and only a few protections cannot be drafted away. An agreement may not eliminate the obligation of good faith and fair dealing or excuse bad faith, willful or intentional misconduct, or a knowing violation of law, and it may adjust the duties of loyalty and care only within statutory limits. Fla. Stat. § 605.0105. Otherwise, a Florida court reads an operating agreement like any other contract and applies it as written.

Missing a Capital Call Can Cost You Your Ownership

In GG Investment Realty, Inc. v. South Beach Resort Development, LLC, 337 So. 3d 431 (Fla. 3d DCA 2022), the owners of a Miami Beach hotel condominium project whose construction loan was in default sold a two-thirds stake to a new investor in September 2008. The Grabarnick family remained as a minority owner, and the new investor became the managing member.

Between October 2008 and March 2010, the managing member issued capital calls, which are requests that each owner contribute additional money. The Grabarnicks did not contribute. The managing member funded roughly $2 million, treated the family’s unpaid share of nearly $1 million as loans secured by their membership interests, and then foreclosed on those interests through a sale under Article 9 of the Uniform Commercial Code.

Among the issues on appeal were two objections to the capital calls and the foreclosure. Both objections failed based on the operating agreement’s language.

Whether the Manager Had to Seek a Loan First

One sentence of the agreement said the managing member “shall first attempt to borrow” the needed funds from third-party lenders. The Grabarnicks read that as requiring a bank loan before any capital call. The next sentence, however, allowed a capital call if the manager was “unable or does not desire to borrow such funds”. Reading the two sentences together, along with the manager’s broad decision-making powers and the company’s financial distress, the court upheld the manager’s discretion to call capital without seeking another loan.

Whether Dilution Had to Come Before Foreclosure

The Grabarnicks also argued that the manager first had to dilute, or reduce, their ownership percentage. The agreement, however, gave the contributing members a security interest in a defaulting member’s entire interest and the rights of a secured party under Article 9, including the right to sell that interest after a default. The appellate court found the trial court’s reading of those provisions legally sound and upheld the sale as valid and commercially reasonable.

Florida law expressly permits an operating agreement to specify the consequences of a missed contribution, including dilution, subordination, forfeiture, a forced sale, loans from the other members or a buyout at an appraised value. These remedies are not automatic. The agreement must provide for them. Fla. Stat. § 605.0403(5). However, in Florida, a promise to contribute is not enforceable unless it is in writing and signed, so a verbal promise to cover a shortfall generally cannot be enforced. Fla. Stat. § 605.0403(1).

One Manager May Have Authority to Transfer the Property

In KADA 13, LLC v. Georgetown Holdings, Inc., 429 So. 3d 1062 (Fla. 3d DCA 2026), a trust owned an LLC whose only asset was a Miami property. A husband and wife served as co-trustees and, under the operating agreement, as managers. The trust documents and the operating agreement gave each of them broad authority, including the power to “sell, lease, exchange, mortgage, pledge, or otherwise transfer” the company’s property and to act “individually and without the need of the signature or consent of the other Manager or Trustee.”

The couple had borrowed $500,000 to buy another property, personally guaranteed the loan and pledged the Miami parcel as collateral. After they separated, the husband transferred the Miami property to the lender to satisfy the note. He amended the LLC’s annual report with the Florida Division of Corporations to name himself manager. The wife then filed an amendment naming herself sole manager and sued on the LLC’s behalf to undo the transfer.

After a bench trial, the trial court upheld the transfer and the Third District affirmed. An operating agreement is construed under established contract law, the court explained, and this one plainly allowed either manager to act alone. The dueling annual reports were not consequential. In the court’s words, “external filings do not usurp the contractual rights expressly conferred under an operating agreement.” The court also observed that the transfer reduced a debt both spouses had guaranteed and benefited the trust’s beneficiaries.

The practical lesson extends beyond divorce. Authority to sign routine leases need not include authority for major decisions such as to sell the building or pledge it as security for another venture’s debt. Members to an operating agreement should specify which decisions one manager can make alone and which require additional approval. Changing a name on an annual report is not a substitute for following the agreement’s removal procedure. A filing with the Division of Corporations does not create a presumption that its contents are correct, Fla. Stat. § 605.0210(5), and the Division’s website says filed documents are accepted only at face value.

Who Can Sue When a Deal Goes Bad: Direct and Derivative Claims

Dinuro Investments, LLC v. Camacho, 141 So. 3d 731 (Fla. 3d DCA 2014), illustrates a different risk. A member can suffer a real financial loss and still have no right to sue for it personally. In Dinuro, three companies held equal one-third interests in a homebuilding venture with projects in Homestead and Florida City. When the bank required additional capital, two members contributed and Dinuro did not. The loans went into default.

The principals of the other two members then formed a new company, bought the defaulted loans from the bank and acquired the properties through foreclosure. Dinuro was left with a one-third interest in entities that owned nothing. Dinuro sued the other members, their principals and the bank for breach of the operating agreements, tortious interference and conspiracy.

The trial court dismissed those claims and the Third District affirmed, because Dinuro had sued individually for an injury to the companies. In the court’s words, a member may bring a direct action “only if (1) there is a direct harm to the shareholder or member such that the alleged injury does not flow subsequently from an initial harm to the company and (2) there is a special injury to the shareholder or member that is separate and distinct from those sustained by the other shareholders or members”, unless “there is a separate duty owed by the defendant(s) to the individual plaintiff under contractual or statutory mandates.” Dinuro met neither test, and nothing in the operating agreements made the members “directly liable to each other for breaches of the terms of the operating agreement.” Dinuro’s remedy was a derivative action on behalf of the companies, which it had not brought. The court decided who could sue, not whether the other members’ conduct was proper, and it left open whether a fiduciary duty claim, which Dinuro had dropped, could have been brought directly.

Florida’s LLC statute now codifies the Dinuro test. A member may sue directly only by pleading and proving “an actual or threatened injury that is not solely the result of an injury suffered or threatened to be suffered by the limited liability company,” or an injury “resulting from a violation of a separate statutory or contractual duty owed by the alleged wrongdoer to the member, even if the injury is in whole or in part the same as the injury suffered” by the company. Fla. Stat. § 605.0801(2).

In plain English, ask who was hurt first. If a manager steals from the company, mismanages it or strips its assets, every member’s interest loses value, but the company is the one that was robbed. That claim belongs to the company. A member can pursue it only as a derivative action, a suit brought on the company’s behalf, and generally must first demand that the people in control act, unless demand would be futile or delay would cause irreparable injury. Any recovery goes to the company, not the member who sued, although the court may award that member fees and expenses from the recovery. Fla. Stat. §§ 605.0802, 605.0805. A member may sue individually only when the wrong was done to the member personally, such as a distribution owed to that member and withheld, a refusal to let that member inspect the books, a misrepresentation that induced that member to invest, or the breach of a duty the agreement or statute owes to that member specifically.

The Florida nuance is that the test is stricter than in many states. Other states generally inquire only who suffered the harm and who would receive the recovery. Florida requires both a direct harm and a special injury different from the other members’, unless a separate duty exists. The Fourth District, which hears appeals from Palm Beach and Broward Counties, adopted the Dinuro test in Strazzulla v. Riverside Banking Co., 175 So. 3d 879 (Fla. 4th DCA 2015), and the rule applies with full force to small companies. In Home Title Co. of Maryland, Inc. v. LaSalla, 257 So. 3d 640 (Fla. 2d DCA 2018), a member of a two-member LLC lost a judgment he had won against the escrow agent that conveyed the company’s land to the other member. “Even though LaSalla is the only other member of the LLC who suffered as a result of the transfer,” the court wrote, “the harm to him individually was indirect”.

What Florida LLC Investors Should Review Before Signing

Before signing, both the deal sponsor and the passive investors should review:

• Capital calls. Who may make them, for what purposes, on how much notice, whether there is a cap, and whether outside financing must be pursued first.
• Missed contributions. Identify the available remedies, who chooses among them, any opportunity to cure, and whether dilution or foreclosure can eliminate your interest.
• Written commitments. Put each member’s promise to contribute capital in a signed writing, including the terms governing future capital calls.
• Authority to sell, refinance or mortgage. Decide whether one manager may act alone or whether major decisions require joint action or member consent, and define which decisions are major.
• Removing a manager. Set out the grounds, the voting threshold and the procedure. An annual report amendment alone does not override the agreement.
• Conflicts of interest. Address member loans and related-party transactions, and specify the disclosure and approval requirements, within Florida’s statutory limits. Fla. Stat. §§ 605.0105(3)–(4), 605.04092.
• Information rights. Specify access to financial statements, budgets and company records. The agreement cannot unreasonably restrict a member’s statutory information rights. Fla. Stat. §§ 605.0105(3)(h), 605.0410.
• Exit and deadlock. Buy-sell provisions, rights of first refusal and a defined path forward when the owners cannot agree.

Review the Agreement Before the Deal Is Under Pressure

Ask now what happens if you cannot meet the next capital call, your co-owner wants to sell, or the two of you stop agreeing. If the answers are unclear or unacceptable, negotiate them before signing. Once money is short or a relationship breaks down, changing the agreement becomes much harder. In each of the cases above, the losing member had an argument that sounded fair. However, language in the operating agreement to support the argument was missing.

Frequently Asked Questions

Can a Florida LLC force a member to make a capital contribution?

Only if the member agreed in a signed writing. A promise to contribute is unenforceable unless it is set out in a writing signed by the person making it, and the operating agreement may spell out the consequences of a default, from dilution to a forced sale. Fla. Stat. § 605.0403.

Can one manager of a Florida LLC sell or mortgage company property without the other manager’s consent?

It depends on the operating agreement. In KADA 13, the agreement allowed each manager to act alone, and the court enforced it over the other manager’s objection. If the agreement requires joint action or member consent for major transactions, the answer is different.

Can an LLC member in Florida sue another member directly?

Only in limited circumstances. Under Fla. Stat. § 605.0801, the member must plead and prove an injury that is not solely the result of an injury to the company, or the breach of a separate duty owed to the member personally. Otherwise the claim is derivative and belongs to the company.

Kessler Law, LLC is a real estate, business and litigation law firm. Adam S. Kessler is admitted to practice in Florida. We draft and negotiate operating agreements for real estate ventures and represent members and managers in ownership disputes, including in Palm Beach, Broward and Miami-Dade Counties. To discuss a Florida LLC operating agreement or a dispute among owners, call (561) 878-0448 or email akessler@kesslerlaw.com.

This article provides general information about Florida law as of the date it is published, and is not legal advice. Laws and court decisions can change. Reading it does not create an attorney-client relationship with Kessler Law, LLC. Consult a lawyer about your specific circumstances.