Business Law Updates
Issue 1 – September 2018
This issue contains updates regarding State Sales Tax for Online Sellers, Employee Trade-Secret Agreements, and Duties of Members or Managers Of FL LLC’s.
DUTIES OF MEMBERS OR MANAGERS OF FL LLC’S
Any person who manages a Florida LLC, including a member of a member managed LLC or a manager of a manager managed LLC, owes some level of fiduciary duty to the LLC and other members of the LLC. See Fla Stat. 605.04091 (2018). The default duties owed to the LLC include the duties of loyalty and care, which include duties to use company property to benefit the company, refrain from dealing with the company as a person with adverse interest to the company, refrain from competing with the company, refrain from reckless conduct, refrain from willful misconduct, and refrain violations of law. In addition, the Florida Revised Limited Liability Act states that courts may interpret the duties to be even broader than those specifically listed in the statute. Since the statute has only been effective since 2015, there haven’t been many cases defining the additional fiduciary duties, so we currently do not know what those additional duties may be. One possible additional duty may be the “duty to disclose” which is found in Delaware LLC law, and which requires a manager or member to disclose material facts when there is a transaction in which the LLC operating agreement requires member approval.
However, the statute permits members to eliminate or reduce many fiduciary duties through their operating agreement if the elimination or reduction of duties are not “manifestly unreasonable.” Fla. Stat. §605.0105(4)(c) (2018)
Therefore, it is very important to modify or define the fiduciary duties of persons managing your LLC if such persons will be involved in other ventures that compete with the LLC or will be engaging in outside business transactions with the LLC.
EMPLOYEE TRADE-SECRET AGREEMENTS
The federal government has recently enacted legislation that creates a federal, private, civil cause of action for trade-secret misappropriation (the Defend Trade Secrets Act).Prior to this enactment all trade-secret laws were based on state laws and differed from state to state. This new federal law creates a uniform law throughout the country and adds a few useful provisions such as civil seizure of property if needed to prevent dissemination of trade secrets. One important aspect of the law is that it allows for exemplary damages (up to double damages) and attorneys’ fees in an action against an employee that misappropriates a trade secret. However, to get exemplary damages and attorneys fees you must have notified the employee that they may legally disclose trade secrets if they do so in confidence for reporting suspected violations of law.
If your employee trade secret agreement does not contain a notice, or if you do not have an employee trade secret agreement, you will want to update your employee agreements/policies to take advantage of the new federal protections.
STATE SALES TAX FOR ONLINE SELLERS
In June the US Supreme Court ruled that states may charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state. See South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018). Prior to this ruling, states could only collect sales taxes directly from online retailers that had a physical presence in the state. The Supreme Court’s decision was based on their determination that the previous law was giving online retailers an unfair advantage over “brick and mortar” stores. However, the new sales tax rules may prove to be a large burden for small online retailers since each state will have their own sales tax laws and procedures. Enlisting the assistance of tax experts to comply with 50 different sets of state sales tax laws and procedures may prove to be a significant barrier to entry for companies starting small online operations. It is still unclear what the full impact of this decision will be since many states are still in the process of creating laws and procedures for the collection of out-of-state sales taxes.