Effective April 1, 2014, all limited liability companies (“LLCs”) formed in New Jersey will be governed by the Revised Uniform Limited Liability Company Act, N.J.S.A. 42:2C-1 through N.J.S.A. 42:2C-17 (the “Revised Act”). The Revised Act became effective as to newly formed LLCs on March 18, 2013. Starting on April 1, 2014, the Revised Act applies to all previously existing LLCs filed in New Jersey.
The Revised LLC Act differs from the predecessor limited liability company Act in several substantial respects, of which current operating LLCs and those individuals deciding whether to incorporate a LLC in New Jersey should be aware, including the following:
- An LLC will no longer have a limited duration, but instead will have perpetual duration under the Revised LLC Act.
- The former LLC Act required a written Operating Agreement. Under the Revised LLC Act however, the Operating Agreement may be in writing, oral or even implied based on how the LLC operates.
- Under the former LLC Act, the Operating Agreement could expand or restrict an LLC member’s or manager’s fiduciary duties. But under the Revised LLC Act, the Operating Agreement cannot eliminate or restrict such fiduciary duties unless the termination or restriction of such duties is “not manifestly unreasonable.”
- The Revised LLC Act 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.
- Similar to the minority shareholder oppression statute that applies to corporations, the Revised Act provides a remedy for a member who claims oppression. Specifically, the Revised Act allows a member of an LLC to apply for an order from the Court 1) dissolving the LLC or appointing a custodian to manage its affairs on the grounds that the LLC’s activities are unlawful or that the LLC’s managers or controlling members are acting illegally, fraudulently or oppressively to the applicant. The oppressed member’s remedies also include demanding the LLC and the other members to purchase his or her membership interest in the LLC.
- The Revised LLC Act provides that unless the members of the LLC agree otherwise,any distributions to members before the dissolution and winding up of the LLC are to be made to members in equal shares.
- A resigning member of an LLC is no longer entitled to the “fair value of his limited liability company interest as of the date of resignation” under the Revised Act. Instead, a resigning member will be considered to have disassociated himself as a member and will continue to have rights only as an economic interest holder, a significant departure from the superseded law.
- The Revised LLC Act permits an LLC to file a “statement of authority” with the State Treasurer setting forth those individuals or entities with the authority (or lack thereof) to execute agreements relating to the transfer of real estate and enter into any other transactions on behalf of the LLC.
The above highlights some of the material changes to the governance of limited liability companies in New Jersey. Because of the complexities of the Revised Act and its application to both existing and new LLCs in New Jersey, you should consult with an experienced corporate lawyer to review and update your LLC’s Operating Agreement.