Articles Tagged with limited liability company act

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Operating Agreements for Limited Liability Companies to Change Under Revised Limited Liability Company Act

 

Part of an ongoing series on the adoption of New Jersey’s revised limited liability company act.

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The amendments to the New Jersey’s Limited Liability Company Act, N.J.S.A. 42:2C-1-94 that begin to take effect in March 2013 will bring a new era in the way the members of a limited liability company structure their affairs.  The days in which the members must put their agreements in writing will soon be over, and the owners of New Jersey LLCs should take a hard look at their own operating agreements and course of doing business.

In adopting the Revised Uniform Limited Liability Company Act, the state legislature has approved a fundamental change to the way LLCs operate in New Jersey.  We are examining these changes in a series of articles and today focus on the effect of the changed definition of operating agreements.

Written Operating Agreements Not Required

The old law may have been rigid, but at least it was clear.  It was not required in New Jersey (as in some other states) to have an operating agreement, but if you did, it had to be in writing.  If there was no written operating agreement, then the “default” rules provided by the statute governed.  That has changed significantly.  The new law defines an operating agreement as

“the agreement, whether or not referred to as an operating agreement and whether oral, in a record, implied, or in any combination thereof, of all the members of a limited liability company …”

To understand just how much of a change is this definition, we can look at a 2004 decision of the Appellate Division in Kuhn v. Tuminelli, 366 N.J. Super. 431, 841 A.2d 496 (App. Div. 2004).  In that case, the plaintiff and defendant owned a limosine service and the defendant embezzled funds by endorsing checks to the company and keeping the funds.  Kuhn argued that the defendant did not have authority to convert the checks and named as a defendant the check cashing service that had negotiated the checks.

 

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Limited Liability Company Act Transforms Principles of LLCs

A new set of laws governing New Jersey limited liability companies will become effective in March. The changes are profound.  The Limited Liability Company Act fundamentally changes a number of bedrock principles about the manner in which limited liability companies are organized and managed.

Limited Liability Company Becomes Entity Type of Choice for New Businesses

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