A founder in Jacksonville called me last fall, about a year after the sale of his Florida-LLC services business to a regional private equity sponsor. The deal had closed cleanly. The earnout was running about where everyone expected. He was on the post-close advisory board and getting along with the new operator. Then a former customer filed suit against the company — now operated by the buyer — alleging that the company had given negligent advice during a project the founder had personally supervised three years before close. The complaint named the company and named the founder individually as the project manager. The call set up the question this post is about: when a Florida LLC sells, does Florida § 605.0408 LLC manager indemnification follow the founder through closing, or does it stop at the closing table?
His first call was to me. His second call was to the buyer’s general counsel asking the company to defend and indemnify him as a former manager of the LLC, the way the operating agreement had always provided. The GC’s response — polite, prompt, and devastating — was that the operating agreement had been amended at close, that the new agreement did not provide for indemnification of pre-close managers, and that the company was not in a position to indemnify him.
He sent me the closing binder. The buyer’s GC was correct on the documents. The OA had been replaced at close by a buyer-form OA with no indemnification carry-forward. The merger agreement had a one-paragraph “Directors and Officers Indemnification” covenant — copied from a corporate form — that had no force in an LLC context. The D&O tail policy the founder thought had been bound at close had never actually been bound; that was a line item the broker had quoted but the founder, focused on closing, had never signed off on. He was on his own.
Why Florida § 605.0408 is permissive, not mandatory
The Florida Revised Limited Liability Company Act, codified at Chapter 605 of the Florida Statutes, addresses manager and member indemnification at § 605.0408. The architecture is permissive. Subsection (2) says the LLC “may” indemnify a person against a claim arising from that person’s former or present capacity as a member or manager, subject to the statutory carve-outs in §§ 605.0405, 605.0407, 605.04071–.04074, and 605.04091. Subsection (3) says the LLC “may” advance defense expenses on an undertaking to repay. Subsection (4) says the LLC “may” purchase insurance. The verb throughout is “may.” The statute is enabling, not commanding. The substantive indemnification right has to come from somewhere else, and in practice that somewhere is the operating agreement.
That is a different architecture than DGCL § 145(c), which makes indemnification of expenses mandatory for a Delaware corporate director or officer who has been “successful on the merits or otherwise” in defense of a covered proceeding — a right that exists even without a charter or bylaw provision. Florida’s LLC Act puts the entire framework into the operating agreement. The operating agreement gives, and the operating agreement — when the buyer rewrites it at close — takes away. The same pattern shows up across Chapter 605: the Florida operating agreement quietly trumps the statute on member consent as well, which is why a Florida LLC diligence pass should start with the OA and not the code.
The statute does not contain an express non-retroactivity rule for indemnification rights. Section 605.0408 is silent on whether an amended OA can eliminate coverage for acts that have already occurred, and § 605.0105 — which polices what the OA can and cannot do — addresses non-waivable provisions (bad faith conduct, knowing violations, improper personal benefits) but not the temporal point. The protection a founder may have, if any, is not statutory; it is the general Florida-contract argument that an indemnification provision is a vested contractual right with respect to acts already taken under it, and a later amendment without the founder’s consent cannot strip rights that have already accrued. That argument is available, but it has to be litigated, and the LLC’s post-close manager is not going to volunteer it.
That is the founder’s first surprise. The pre-close OA may have given the manager a robust indemnification right. After the OA is rewritten, the right that the founder has to argue is not “the OA covers this” — the OA does not, anymore — but “the pre-close OA covered this, and the buyer cannot retroactively erase it.” That is a contract-law claim against an entity the buyer now controls. It is not a clean statutory entitlement.
The funding-source problem
Even if the founder wins the vested-rights argument, there is a second problem the founder almost never thinks about until the demand letter arrives. The funding source for the indemnification obligation is the LLC’s assets. After the sale, the LLC’s assets are under the buyer’s control. The founder has a contractual right against an entity now operated by people whose interests are not aligned with his.
A claim is filed. The founder demands defense and indemnification under the pre-close OA. The post-close LLC’s manager — a sponsor designee — responds that the LLC’s view of the claim is different than the founder’s, that the manager is not yet persuaded that the underlying acts qualify for indemnification under the OA as it existed pre-close, that the LLC will engage counsel to investigate, that the founder is welcome to engage his own counsel in the meantime. The fight is now between the founder and the LLC, with the LLC controlled by the buyer. Even if the right to indemnification is intact, the path to actually collecting it runs through the new owner.
That dynamic is the part the merger agreement has to address, and the part that boilerplate “D&O Indemnification” covenants almost never reach. The right covenant is a direct indemnification obligation from the buyer to the named pre-close managers, with the buyer agreeing to cause the LLC to honor the pre-close OA in the manner specified, with a survival period that meaningfully outlasts the relevant statutes of limitations, and with a funded reserve or a tail D&O policy backing it up.
The merger agreement covenant that actually works
The provision that protects the founder has three pieces. First, an express survival of pre-close indemnification rights under the operating agreement as in effect immediately prior to the closing, with the buyer covenanting to cause the surviving LLC not to amend or modify those rights for a defined period — typically six years to match the standard tail period — in a way that adversely affects any former manager.
Second, a direct backstop indemnification from the buyer to the named former managers — distinct from the LLC’s obligation — that triggers if the LLC fails or refuses to provide the indemnification the OA contemplates. The backstop has to be drafted as a primary obligation, not a guarantee, so that the founder is not stuck litigating against the LLC before having recourse to the buyer.
Third, a tail D&O policy bound at close, with the founder named as an insured, the policy term set to at least the longest applicable statute of limitations for foreseeable claims, and the premium paid at close out of the purchase price. The tail policy is the practical answer, because it puts an insurer between the founder and any post-close fight with the buyer over what the OA did or did not require. Most middle-market deals on the corporate side now budget for a six-year tail at close. LLC deals copy the corporate form less reliably — and the gaps are the subject of a separate post on D&O tail insurance and the three coverage gaps that quietly stay with the founder.
The Florida overlay on § 605.0408 manager indemnification
Two Florida-specific notes are worth flagging. The first is that the Florida Revised LLC Act’s manager-indemnification framework runs entirely through the operating agreement, and Florida courts have been disciplined about enforcing the operating agreement as written. Florida corporate governance practice is more textualist than founders sometimes expect — a pre-close OA provision that is ambiguous about indemnification of former managers is likely to be read in a way that leaves the former manager exposed, not protected. If the founder’s protection depends on a vested-rights theory rather than the four corners of the current OA, the founder is in litigation, not collecting a check.
The second is that Florida’s standard D&O insurance market — in my experience with middle-market deals here — is competent on the corporate side and uneven on the LLC side. A founder selling a Florida-LLC target should not assume that a “directors and officers” tail policy quoted by a broker actually covers the founder’s role as manager of the LLC. The policy needs to be checked for the LLC overlay, which is not standard form, and which several major carriers handle differently. That observation is opinion, not data — but it is the basis on which I tell clients to read the policy themselves before close, not the broker’s summary.
The other Florida wrinkle is timing. Florida amended its general statute of limitations in 2023 (HB 837). General negligence claims that accrue on or after March 24, 2023 now run two years rather than four under § 95.11(4)(e); negligence claims that accrued before that date still get the prior four-year period under § 95.11(3). Claims founded on a written contract continue to run five years under § 95.11(2)(b). For a post-2023 sale, the relevant exposure window is narrower than the old four-year mental model, but design and construction claims under § 95.11(3)(b), professional-malpractice claims, and contract-based claims still warrant a six-year tail with margin. The standard six-year tail still covers the realistic universe of claims, and a tail of less than six years is leaving a window where the manager is exposed without coverage.
What I tell Florida LLC founders before signing
The question I ask every Florida LLC founder before the merger agreement gets to a near-final draft is short. What does the operating agreement say about indemnification of pre-close managers? If the answer is “I do not know,” that is the work. If the answer is “we had a strong indemnification provision,” the next question is whether the merger agreement preserves it, whether the buyer is providing a direct backstop, and whether a tail policy is being bound at close. If any of those three are missing, the founder is taking on personal exposure they may not appreciate until the demand letter arrives.
The Florida M&A practice page walks through more of the pre-close protection dynamics for sellers of Florida LLC targets. The underlying statute is Florida Statutes § 605.0408, which is the framework every Florida LLC indemnification analysis has to start with — and end somewhere else, because the statute does not do the work for you.
If you are a Florida LLC founder approaching a sale and want a second read on the indemnification carry-forward before the merger agreement goes to signing — or are already post-close and now staring at a demand letter — feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. We work with Florida LLC sellers from our Fernandina Beach and Coral Gables offices. Mention you read this post.
