New Jersey is about to become a more business-friendly state as the state’s first major overhaul to limited liability company (LLC) laws in 20 years went into effect this week.
Changes made by the Revised Uniform Limited Liability Company Act brought about 10 major changes that LLC businesses operating in New Jersey should know about, says Michael Mann, partner in charge of Pepper Hamilton at 301 Carnegie Center.
The act, which went into effect on March 18, applies to any new LLCs formed in New Jersey. For existing LLCs, the rules go into effect on March 1, 2014, but existing LLCs can decide to be subject to the law right now.
According to Mann, 10 significant changes brought on by the Revised LLC Act include:
Perpetual duration. Like corporations in New Jersey, LLCs in New Jersey will no longer have to note the desire to have perpetual existence in their documents
Operating agreements. Operating agreements will no longer need to be written and may be oral or even implied. Without an operating agreement however, a company will be subject to the default provisions of the act, and there are specific provisions that cannot be changed by agreement.
Voting rights of members. Members of the LLC now have equal voting rights on all company matters, regardless of ownership interest percentages, unless otherwise provided in the operating agreement.
Authority to bind the company. An LLC can now file a “statement of authority” to confirm a certain member’s or non-member’s authority to bind the company in certain business transactions.
Rights of members upon withdrawal. Withdrawing members no longer have the automatic right to be bought out and will only retain economic rights in the company after withdrawal.
Distributions. Each member is now entitled to an equal share of the profits or losses absent a different allocation under the operating agreement.
Fiduciary Duties. Members will be required to act in the best interest of one another and the LLC.
Profit and not for profit. An LLC can be formed for any lawful purpose, whether for profit or not for profit.
Member oppression. Mirroring the law governing New Jersey corporations, the Revised LLC Act has a provision authorizing the state Superior Court to dissolve the company or appoint a provisional manager for illegal or certain oppressive conduct.
Conversion and domestication. The Revised LLC Act lays out a simple process for LLCs to convert to corporations or other entities and vice versa. Foreign LLCs can also now domesticate and become New Jersey LLCs.
Mann specializes in representing businesses in commercial transactions and providing general corporate and commercial law advice. He also acts as general counsel to privately-owned companies handling mergers, acquisitions, joint ventures and all related debt financing. In addition, he represents franchisors and franchisees in multi-state and federal matters related to the sale and offering of franchises and franchise businesses nationwide.
Mann earned a bachelors degree in 1982 from the University of Colorado, and a law degree in 1985 from Seton Hall Law School.
“This revised act modernizes the state’s limited liability company law and will make New Jersey’s law consistent with the limited liability law of other states that have enacted similar revisions,” says Mann. “This law also provides New Jersey limited liability companies with additional flexibility and help to make New Jersey a more business-friendly location to organize and maintain a business.”