Limited Liability Companies (LLCs) are a very popular business organization that provide the owners with the advantages of corporate-type limited liability, partnership tax treatment and flexibility in organization. Every state has a law that allows for the formation of LLCs and while the overall principles tend to be similar, the details vary from state to state.
Last year, my neighboring state of New Jersey became the first state on the East Cost to adopt Revised Uniform Limited Liability Company Act, a model statute published by the The National Conference of Commissioners on Uniform State Laws. The Revised LLC Act will apply immediately to any LLCs formed in New Jersey on or after March 18, 2013, and will apply to all existing LLCs in New Jersey beginning on April 1, 2014. The Revised LLC Act has also been adopted in California, District of Columbia, Idaho, Iowa, Nebraska, Utah and Wyoming.
The Revised LLC Act contains a number of substantive innovations concerning the operating agreement, including:
Whatever the underlying law, negotiating and drafting a well-written LLC operating agreement is necessary to properly define the rights and duties of the members and managers to each other and the LLC.
Last year, my neighboring state of New Jersey became the first state on the East Cost to adopt Revised Uniform Limited Liability Company Act, a model statute published by the The National Conference of Commissioners on Uniform State Laws. The Revised LLC Act will apply immediately to any LLCs formed in New Jersey on or after March 18, 2013, and will apply to all existing LLCs in New Jersey beginning on April 1, 2014. The Revised LLC Act has also been adopted in California, District of Columbia, Idaho, Iowa, Nebraska, Utah and Wyoming.
The Revised LLC Act contains a number of substantive innovations concerning the operating agreement, including:
- better delineating the extent to which the operating agreement can define, alter, or even eliminate aspects of fiduciary duty;
- expressly authorizing the operating agreement to relieve members and managers from liability for money damages arising from breach of duty, subject to specific limitations; and
- stating specific rules for applying the statutory phrase “manifestly unreasonable” and thereby providing clear guidance for courts considering whether to invalidate operating agreement provisions that address fiduciary duty and other sensitive matters.
Whatever the underlying law, negotiating and drafting a well-written LLC operating agreement is necessary to properly define the rights and duties of the members and managers to each other and the LLC.