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THE NEW LIMITED LIABILITY COMPANY STATUTE IN NEW JERSEY

posted Dec 29, 2013, 9:35 AM by Greg Rabil   [ updated Jul 22, 2014, 5:18 PM ]

On March 13, 2013, the law governing limited liability companies in New Jersey was changed and is applicable to all limited liability companies formed after that date and applicable to all other limited liability companies as of March 1, 2014. (RULCCA or the “Act”)

Accordingly, we are advising all of our clients involved with LLCs to make an appointment to review their Operating Agreement and discuss the impact of the new law on their agreement and what changes should be considered, if any.

The statement of the legislature attached to the new law states that some of the more significant changes and innovations are:

  • Perpetual duration.  RULLCA eliminates the default (and often overlooked) rule that LLCs have a limited life. As is the case with corporations, RULLCA provides for LLCs to have perpetual duration.
  • Permissible Form of Operating Agreement.  RULLCA permits operating agreements to be oral, written or implied based on the way an LLC has operated.  This is consistent with the vast majority of states and in line with the organization of many LLCs formed in New Jersey.
  • Distributions.  Unless otherwise agreed, distributions are made on a per capita basis (that is equally to each member regardless of their percentage ownership).
  • Statements of Authority.  RULLCA allows an LLC to file Statements of Authority with the Division of Revenue in the Department of the Treasury (and in the case of real estate, in the office where real estate records are maintained) authorizing certain people or entities to bind the LLC.
  • Dissociation of a Member.  RULLCA eliminates a major pitfall for the unwary practitioner or layperson forming an LLC in New Jersey.  Under RULLCA, a resigning owner is no longer entitled to receive the fair value of his or her 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.
  • Remedies for Deadlock and Oppression.  Reflecting case law developments around the country and incorporating some of the best elements of the New Jersey Business Corporation Act, Article 7 (Dissolution and Winding Up) of RULLCA provides remedies for oppressed minority owners.  RULLCA permits a member to seek a court order dissolving the company on the grounds that the managers or those members in control of the company have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the member RULLCA also permits a member to seek (or, in its equitable discretion, a court to order in lieu of dissolution) a less drastic remedy such as the appointment of a custodian.
  • Domestication and Conversion.  RULLCA provides enhanced ease and flexibility for domesticating, merging and converting an entity other than a domestic limited liability company, if permitted by the law under which it was formed.  Its comprehensive provisions offer streamlined methods for domestication (e.g. allowing an LLC formed under the laws of another state to become a New Jersey LLC) and conversion (e.g. allowing a corporation to become an LLC).

RULLCA establishes mandatory, permissible and optional provisions for limited liability company operating agreements. It is imperative to carefully review and revise future operations and the Operating Agreement in light of the Act to make any necessary or desirable changes to the provisions governing, for example:

  • The fiduciary duties imposed on members and managers;
  • The liability and indemnification of members and managers;
  • Members’ rights to information;
  • Distribution and allocation of profits and losses;
  • Restrictions on the form of Operating Agreement;
  • Voting rights;
  • Rights on any transfer or attempted transfer of a member interests;

We look forward to providing assistance with the review and revision of your Agreement(s). 

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