When an LLC Member Breaks the Operating Agreement, Act Deliberately

If another owner broke your LLC’s operating agreement, you may wonder whether you can take them to court. In many cases, you can.

Short Answer: Can You Sue an LLC Member Who Breaches the Operating Agreement?

Yes, in many cases a member can be sued for breaching the operating agreement. The agreement works as a contract among the members and the company. Whether your claim works depends on the facts, including what the agreement says, who was harmed, and whether it requires a set process before anyone files suit. This page covers who can sue, common breaches, possible remedies, and the steps to take first.

Why the Operating Agreement Is Enforceable as a Contract

Florida’s LLC law, Chapter 605 of the Florida Statutes, lets members set many of their own rules in the operating agreement. Under Fla. Stat. § 605.0105, the agreement governs relations among the members and between the members and the company, except where the statute limits it. If the agreement says nothing about a matter, the chapter fills the gap.

Under Fla. Stat. § 605.0106, the company is bound by the agreement and may enforce it. A person who becomes a member is deemed to assent to it and may enforce it too. Joining the LLC generally ties you to its terms.

The limits matter. A court also decides whether a term that changes fiduciary duties is manifestly unreasonable. So the first task is reading the document closely for the exact provision at issue.

Who Has the Right to Bring the Lawsuit: The LLC or an Individual Member

A member can sue directly when they personally lose out. A business that believes it has lost money or opportunities because of another party’s conduct can discuss its options with our team. Under Fla. Stat. § 605.0801, a member may bring a direct action against another member, a manager, or the company to enforce their own rights. The member must plead and prove either an actual or threatened injury that is not solely the result of an injury to the company, or an actual or threatened injury from a violation of a separate statutory or contractual duty owed to the member, even if the injury is in whole or in part the same as the injury suffered or threatened to be suffered by the company.

A claim that belongs to the company is a derivative claim. Under Fla. Stat. § 605.0802, the member must first demand that the other members or managers act, giving them a reasonable time not to exceed 90 days. The demand can be skipped only if it would be futile or if waiting would cause irreparable injury to the company. Under Fla. Stat. § 605.0803, only a person who is a member when the action is commenced and who was a member when the conduct giving rise to the action occurred, or whose membership status devolved on them by operation of law or under the operating agreement from such a member, may bring this kind of action.

The category matters. It affects who the defendant is, what you must prove, and who receives the money. A recovery owed to the company goes to the company.

Common Operating Agreement Breaches Co-Owners Raise

Co-owners tend to raise a few kinds of breach. Your agreement may define each duty in its own way, so read the exact wording.

• Capital. Failing to make a required contribution or skipping the agreed capital call process.
• Distributions. Taking payments the agreement does not allow, or holding back payments it requires. Under Fla. Stat. § 605.0405, a company may not make a distribution if, after the distribution, it would not be able to pay its debts as they become due in the ordinary course of its activities and affairs, or its total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the company were to be dissolved and wound up at the time of the distribution, to satisfy the preferential rights upon dissolution and winding up of members and transferees whose preferential rights are superior to those of persons receiving the distribution.
• Votes. Acting without a vote or approval the agreement requires.
• Opportunities. Taking a business opportunity or customer that belonged to the company.
• Restrictive covenants. Breaking non-compete, non-solicitation, or confidentiality terms.
• Transfers. Moving a membership interest in violation of the agreement’s transfer limits.

Members also owe duties of loyalty and care. Under Fla. Stat. § 605.04091, the duty of loyalty includes accounting to the company for profit taken from a company opportunity. The duty of care means refraining from grossly negligent or reckless conduct, willful misconduct, or a knowing violation of law.

What a Florida Court May Award and What the Agreement Must Say

Each dispute turns on its own facts and contract terms. You need records that show the loss. The remedies that may be available vary from case to case.

Attorney’s fees often surprise people. Under the American Rule, Price v. Tyler says each party generally bears its own attorney’s fees unless a contract or statute provides otherwise. If the operating agreement has a fee clause, Fla. Stat. § 57.105 may allow fees to the other side when it prevails on that contract claim. Check the fee clause early.

If the company refuses to let a member inspect required records, Fla. Stat. § 605.0411 lets the circuit court summarily order inspection. The court must also order the company to pay reasonable costs and attorney fees, unless the company proves it refused inspection in good faith because it had a reasonable basis for doubt about the member’s right to inspect or copy the records.

If the agreement requires arbitration, Fla. Stat. § 682.02 makes an arbitration agreement in a record valid, enforceable, and irrevocable, except on a ground that exists at law or in equity for revoking a contract. The court decides whether the agreement exists, and the arbitrator decides some conditions.

Steps to Take Before Filing a Lawsuit

Start by reading the dispute clause. Look for mediation, arbitration, or notice-and-cure steps. Skipping a required step can hurt your position.

Gather and keep your records. That includes the agreement and any amendments, bank statements, emails, meeting minutes, and financial statements showing the loss. Write down dates and keep copies.

Check the deadline. Fla. Stat. § 95.11 sets time limits for different kinds of claims. Which period applies depends on the claim and when it started, so confirm it early. Florida’s laches rule can also bar a claim brought too late.

Consider a written demand letter. It puts the other side on notice and may be required by the agreement. Keep it factual and tied to the agreement’s terms.

Related Claims and Next Steps for Your Business

The same facts may support related claims. Under Williams v. Johnson, an express contract covering the same subject matter generally bars an unjust enrichment claim based on that relationship. The written agreement usually controls, which is one reason to review it closely.

Ayala Law PA focuses on business litigation, including shareholder and partnership disputes, commercial litigation, and contract disputes. The firm’s office is at 1646 W Snow Ave in Tampa, and it represents businesses in Hillsborough County and the Tampa Bay area. Eduardo A. Maura is the lawyer responsible for this page.

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