On March 18, 2013, New Jersey became one of seven states plus the District of Columbia to adopt and put into effect the Revised Uniform Limited Liability Company Act, commonly referred to as the Revised LLC Act. The act was written by the National Conference of Commissioners on Uniform State Laws, an organization whose purpose is to clarify state laws and bring as much uniformity to them as possible. At this point, California, Idaho, Utah, Wyoming, Nebraska, Iowa, New Jersey and the District of Columbia have all adopted the Revised LLC Act, while South Carolina introduced the Act in their legislature earlier this year for consideration.
When the prior act was adopted in 1993, limited liability companies (LLCs) were a very new business entity and there was little experience with them to guide those writing the legislation. As a result, a number of issues have arisen in the ensuing years that the Revised LLC Act was written to address. As stated above, the new law affects all LLCs filed on or after March 18, 2013. Existing LLCs will have a short reprieve; however, they must comply with the new law on or before April 1, 2014.
Some of the changes that have been incorporated into the New Jersey Revised LLC Act include:
- Change to Perpetual Duration of the Entity – The prior law set a limited life on an LLC. Under the revised Act, an LLC can have a perpetual life, similar to a corporation.
- LLCs can file to be either profit or non-profit under the revised law.
- Change to Operating Agreement Requirements – Under prior law, the operating agreement had to be in written form. The revised law allows operating agreements to be in writing, oral or even implied based on how the LLC actually operates.
- Voting Rights – All members have equal voting rights under the revised law regardless of their percent ownership interest.
- Authority to Bind the LLC – The revised law allows the entity to file a Statement of Authority with the New Jersey Division of Revenue in which they can specify which individuals may or may not enter into agreements or contracts on behalf of the LLC.
- Fiduciary Responsibilities – Prior law allowed the LLC to augment or limit the fiduciary responsibilities of the LLC’s members by specifying the changes in the operating agreement. The revised law allows for augmentation or limitation of fiduciary responsibilities but only if those changes are determined not to be “manifestly unreasonable.”
- Resignation of a Member – In the past, the resigning member was still entitled to the fair market value of their LLC interest, effective the date of their resignation. Under the revised law, the resigning member will continue to have the rights of their equity interest in the LLC only.
- Legal Remedies When Conflicts Arise – The revised law allows a member of an LLC to request the court to either appoint a custodian to manage the LLC or dissolve the LLC in situations where there is evidence that controlling members or managers are acting illegally, fraudulently or in a manner that will harm the member requesting the Court intervention.
- Equal Distributions – Unless the members agree to other terms, in the event of dissolution of the LLC, any distributions made to members are made on an equal basis.
- LLCs will have a simple method of changing to a corporation or other business entity.
- Foreign LLCs will be able to domesticate in New Jersey.
To read the complete text of the bill, click here.