The effective date of New Jersey’s Revised Uniform Limited Liability Company Act (“RULLCA”) was March 1, 2014. The new LLC law is fully effective as of March 18, 2013 for newly formed LLCs and will be applied to all LLCs effective March 1, 2014. The differences are significant enough to warrant a thorough review of all Operating Agreements.
The RULLCA differs from the Limited Liability Company Act currently in effect (the “LLC Act”) in a number of material respects, of which LLC managers, members and those individuals deciding whether to start an LLC should be aware, including the following:
- The LLC Act requires that an LLC’s Operating Agreement be in writing. The RULLCA provides that any written or oral agreement, or any course of dealing, can be an operating agreement.
- An LLC will no longer have a limited life, but instead, under the RULLCA, will have perpetual duration.
Under the LLC Act, an LLC member’s or manager’s fiduciary duties can be expanded or restricted in the Operating Agreement. Under the RULLCA, however, the Operating Agreement cannot eliminate or restrict such fiduciary duties unless the termination or restriction of such duties is “not manifestly unreasonable.” - The RULLCA provides that the Operating Agreement may eliminate or limit a member or manager’s liability to the LLC and members for money damages, except for (1) breach of the duty of loyalty; (2) a financial benefit received by the member or manager to which the member or manager is not entitled; (3) an improper distribution; (4) intentional infliction of harm on the LLC or a member; or (5) an intentional violation of criminal law.
- Under the RULLCA, a resigning owner is no longer entitled to receive the fair value of an LLC interest as of the date of resignation. Rather, upon resignation, the resigning owner is dissociated as a member and only has the rights of an economic interest holder.
- Under the RULLCA, distributions are assumed to be in equal shares, as opposed to the current presumption that they are proportionate to the capital contributed to the limited liability company.
It is highly recommended that New Jersey LLC members review the Operating Agreement of their LLCs and update them to address these changes and others made by the Revised LLC Act prior to the date on which it went into effect (March 1st). Call business formation lawyer Charles Bratton at 856-857-6000 or contact us here to schedule a consultation.