Most of the time it is pretty straight forward who needs to sign listing agreements and sales contracts for real estate transactions. But, what do you do when a property is owned as an LLC? This is a topic that requires legal guidance. Since I am not qualified to give legal advise, we will defer to the experts in this area. Sam Saad, a local real estate attorney, has shared some great guidance in this article he published today. His contact information is at the bottom of the article should you have any further questions on this topic.
I often get asked who should sign the listing agreement or contract when the property is owned by an LLC? The short answer is that either the members or the manager signs for the company depending on how it is organized. Below I give you a short primer on how to figure that out.
The Florida Revised Limited Liability Company Act (the Act) recognizes only two forms of management of a limited liability company (LLC) — manager-managed and member-managed (the management structure). The difference between a member-managed and manager-managed LLC is more than just the title of the person in charge of management; the Act describes the statutory authority differently.
In member-managed LLCs, “the management and conduct of the company are vested in the members.” By comparison, in a manager-managed LLC, “a matter relating to the activities and affairs of the company is decided exclusively by the manager,” and the operating agreement governs the “activities and affairs” of the LLC. The fiduciary duty imposed by the Act is different. In member-managed LLCs, members have statutory fiduciary duties to the LLC and other members; however, in manager-managed LLCs, only the manager has a statutory fiduciary duty under the Act. An exhaustive list of statutorily imposed requirements and options for the operating agreement are included in the statutes, which gives LLCs wide flexibility in setting up management and defining the rights and duties of members and managers under the operating agreement. This flexibility includes defining or limiting the fiduciary duty and the duty of loyalty or the duty of care if not “manifestly unreasonable.” The Act is intended “to give the maximum effect to the principle of freedom of contract and to the enforceability of operating agreements,” and “[u]nless displaced by particular provisions of [the Act], the principles of law and equity” supplement the Act.
Step One: Determine if the LLC is Manager-Managed or Member-Managed
The first step in confirming the authority of a person to bind an LLC is to determine whether the LLC is manager-managed or member-managed. The sources of this information are the articles of organization and the operating agreement. Florida does not require LLCs to publicly declare whether they are manager-managed or member-managed in the articles of organization, but LLCs do have the option to make that declaration and may identify the name and address of one or more members or managers. If the management structure is not declared in the articles of organization, the only other statutory source of that information is the operating agreement.
Even though the only source of the management structure other than the articles of organization is the operating agreement, and even though LLCs are not required to include the management structure in the articles of organization, LLCs are not required to have a written operating agreement. The operating agreement may be oral or implied. When dealing with an LLC with boilerplate articles of organization that are silent as to management structure and no written operating agreement, the only persons with the authority to explain the oral or implied operating agreement are the individuals identified in or who signed and filed the original articles of organization. Documentation of an oral or implied operating agreement may be done through an affidavit, resolution, or similar document. Alternatively, the LLC could consider entering into a written operating agreement signed by all members.
If an LLC has a manager, it is, by definition, manager-managed. Managers only exist in manager-managed LLCs. If an LLC is hesitant to divulge the operating agreement, one available option to consider is an opinion letter from the LLC’s attorney. If the office of manager is vacant, that does not authorize a member to sign instruments. Instead, the office of manager must be filled. The alternative to designating a manager is a conversion to a member-managed LLC through an amendment to the operating agreement. Ultimately, if no evidence can be found to establish that the LLC has declared itself to be manager-managed, then it is member-managed.
Step Two: Determine if the Person is Properly Authorized
Having identified the management structure, step two is to determine whether the person who proposes to execute documents has been properly authorized. Absent other authorization by the LLC, only a manager signs for a manager-managed LLC, and only a member signs for a member-managed LLC. LLCs may publish the names of presidents, vice-presidents, directors, CEOs, and other persons with official corporate titles, none of which have any meaning under the Act.
Although managing members were eliminated by the Act, many LLCs continue to file annual reports identifying a managing member, or the “MGRM.” Under the Act, a managing member is a member, nothing more. Online filers of LLC articles of organization are invited to designate an “authorized representative,” “authorized person,” or “authorized member,” and of these three titles, the Act only defines the term “authorized representative” to mean a person with the authority to file documents with the Department of State (Department). On its website, the Department also states that these authorized titles refer to the authority to submit filings to the Department. Adding the term “authorized” to any title does not connote or delegate any management authority or the ability to execute real estate contracts or instruments.
Most attorneys take the position that titles other than member or manager may not be relied on as communicating the authority of a person associated with an LLC because the statutes vest the exclusive authority to conduct the affairs of the LLC in members of member-managed LLCs and managers of manager-managed LLCs. For insuring purposes, if an LLC declares itself to be manager-managed, it must appoint a manager by that singular title to sign documents. As all other LLCs are deemed to be member-managed, documents must be executed by a member with that singular title. If an LLC prefers to use a different title for the person signing instruments, the instrument will not be facially valid so the recordation of a resolution or other document signed by the manager or member, as appropriate, is normally required.
Step Three: Determine if Authority Has Been Delegated or Limited
The statutory mechanism for publishing limitations on authority and assignments of authority is the statement of authority (SOA). Limitations and assignments can also be implemented by the articles of organization, the operating agreement, powers of attorney, and other documents. Any document assigning or limiting authority must go through the analysis of steps one and two above to confirm that the document was properly authorized. The Act imposes statutory agency on members and managers. As applied to an LLC’s interest in real property, unless an SOA is recorded in the real estate records of the county where the property is located, or there is actual knowledge of lack of authority, under the terms of the Act, instruments signed by members of member-managed LLCs and managers of manager-managed LLCs are conclusive in favor of a person who gives value without knowledge of the lack of authority.
How to Streamline a Florida LLC for Real Estate Transactions
The streamlined set-up for a Florida LLC to engage in real estate transactions is a declaration in the articles of organization that the LLC is either manager-managed or member-managed with the name and address of at least one initial manager or member. Additionally, consider the inclusion of a statement in the articles of organization that the identified manager or member may sign and deliver an instrument transferring or affecting the LLC’s interest in real estate. Subsequent annual reports or amendments should be linked to prior filings signed by previously identified authorized representatives. This will publish the management structure and give either a manager or member the necessary authority to sign instruments through a direct link to the articles of organization without the necessity of divulging the complete membership list, the operating agreement, or the necessity of member resolutions ratifying the transaction. With this structure, for insuring purposes, absent an SOA limiting authority; conflicting information, such as conflicts in the operating agreement and the public information on www.sunbiz.org; or actual knowledge of a potential lack of authority, all that is normally required to confirm authority to close a real estate transaction is a short affidavit confirming that the information remains correct and there is no limitation on the authority to enter the transaction and bind the LLC.
The power to bind an LLC should be documented through an unbroken chain that begins with the articles of organization and ends with the delegation of authority to the person executing the documents. If that person is an entity, such as an LLC with another LLC as its manager, the authorization of each layered entity must be separately determined. Missing links, such as a connection to boilerplate original articles of organization signed only by attorneys, or annual reports and amendments signed by previously unidentified individuals, must be evaluated and corrected as necessary. Recent filings should be scrutinized to determine authority and authenticity. If the authority of the person executing an instrument is questioned, the practitioner should be able to explain and document the information used to make the necessary determination of whether an LLC is member-managed or manager-managed, the authority of the manager or member, any documents limiting or delegating authority, and any other information to support the opinion of the power to bind.
As you can see, figuring out who has the power to sign for an LLC can be a daunting task.
Sam J. Saad III / Managing Attorney
Phone: (239) 963-1635 / Cell: (239) 784-5556