THE NEW NEW JERSEY LIMITED LIABILITY COMPANY ACT - WHAT IT MEANS FOR YOUR LLC
THE “NEW” NEW JERSEY LIMITED LIABILITY COMPANY ACT –
WHAT IT MEANS FOR YOUR LLC
Effective March 18, 2013, after almost twenty years on the books, the New Jersey Limited Liability Company Act (the “Old Act”) was repealed and replaced in whole with the “Revised Uniform Limited Liability Company Act” (the “Revised Act”).
The Revised Act currently governs all limited liability companies formed after the effective date of March 18, 2013. On March 1, 2014, the Revised Act will be applicable to all New Jersey limited liability companies whether they were formed before or after effective date of the Revised Act.
Some of the differences between Revised Act and the Old Act include:
- Elimination of the default rule that limited liability companies have a limited life and replacement with a statutory section that provides that limited liability companies automatically have a perpetual duration
- Allowing operating agreements to be oral , written or implied based upon the way the limited liability company has actually operated, as opposed to requiring written agreements
- Providing that, unless agreed to otherwise by the members, monetary distributions by the limited liability company to its members are made on a per capita basis
- Allowing for the filing of a statement of authority (1) with the Department of the Treasury, Division of Revenue and, (2) in the case of matters involving real estate with the applicable county clerk or register , authorizing certain people or entities to bind the limited liability company without further documentation or the need for any type of consent or resolution
- Formally providing minority membership interest holders with protective provisions similar to those utilized for corporations and allowing members to seek court ordered custodian’s for or dissolution of a limited liability company based upon oppressive control practices by majority owners
- Specifically providing that the debts, obligations and liabilities of the limited liability company cannot become those of members or managers based upon the failure of the limited liability company to observe any particular formalities relating to the exercise of its powers or management
- Specific standards of conduct for members and managers, including fiduciary duties of the members
- Providing for mandatory indemnification of members and managers by the limited liability company in certain circumstances
To make sure they are and will remain in compliance with the law and to avoid unintended consequences resulting from the changes, it is advisable for New Jersey limited liability companies and their attorneys to review their operating agreements (the agreements which control how a limited liability company must handle its day to day operations) formed under the Old Act to insure that those operating agreements address various changes in the “default” provisions (those provisions of the law that govern in the event they are not addressed by the limited liability company’s operating agreement) of the law. These “default” provisions deal with, among other things, duration of the limited liability company, voting rights and monetary distributions.
Likewise, limited liability companies which do not have operating agreements should review the contents of the Revised Act with their attorneys to determine how the changes between the Old Act and Revised Act will affect their operation and whether or not the time has come to have a written operating agreement.
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