Due to recent legislation, the laws under which New Jersey limited liability companies operate will soon change. On September 19, 2012, New Jersey enacted the Revised Uniform Limited Liability Company Act (“RULLCA”), updating the existing New Jersey LLC law and modifying portions of the law that may drastically change how LLCs currently operate. The new law will take effect on March 1, 2014 and apply to every New Jersey LLC. As with the old law, provisions within an operating agreement between LLC members will still determine how an entity operates; however, if the operating agreement does not address certain issues or the LLC has no operating agreement at all, the default provisions of the RULLCA will apply.
Every New Jersey LLC should have an operating agreement in place, but existing operating agreements should be reviewed to determine the potential impact of the new law. The relevant portions of the RULLCA are below. For a more detailed explanation of the law and to learn how it will impact an LLC, please contact a Broder Law Group, P.C. attorney at 856-234-8768.
Summary of RULLCA Changes:
Operating Agreement. May be oral or written. Under the old law, an Operating Agreement must be in writing.
Distributions. Absent an Operating Agreement, all distributions from the LLC will be per capita. In other words, distributions will be split evenly among all members, no matter the percentage interests or capital contributions. If two LLC members own a 90% and 10% interest, respectively, distributions will be made 50% to each member.
Voting. Absent an Operating Agreement, unanimous consent of the members is required for any act outside the ordinary course of business, including sale of all or substantially all of the assets. Ordinary matters are decided by a majority of the members, with each member having one vote.
Duty of Loyalty. Absent an Operating Agreement with relevant provisions, members/managers are prohibited from competing with the LLC and from dealing with the LLC as a third party, including lending money or leasing property to the LLC. There are certain provisions that must be included in an Operating Agreement in order to waive these restrictions.
Resignation. Under the new law, resigning members are not entitled to receive fair value from the LLC for their equity interest. Instead, a resigning member continues to own his equity interest as a dissociated member. He continues to receive distributions, if any, but has no management or voting rights.
Broder Law Group, P.C. is a Moorestown, New Jersey law firm with attorneys licensed in New Jersey, Pennsylvania, New York and Connecticut. The firm limits its practice of law to serving the needs of corporations, small businesses, individuals, and entrepreneurs in the areas of commercial real estate, business law, estate planning, special education law, collections and employment law. If you would like to speak with one of our attorneys, please call 856-234-8768 or visit www.broderlawgroup.com.
DISCLAIMER: This client advisory is for general information purposes only. It does not constitute legal advice, and may not be used and relied upon as a substitute for legal advice regarding a specific legal issue or problem. Advice should be obtained from a qualified attorney licensed to practice in the jurisdiction where that advice is sought.