New Jersey Governor Christie signed into law a Revised Uniform
Limited Liability Company Act on September 21. The new act takes
effect on March 20, 2013, for limited liability companies formed
after that date and on April 1, 2014, for LLCs already in
existence. The new act repeals and replaces the existing New Jersey
Limited Liability Company Act originally enacted in 1993. The new
act includes provisions based on the Revised Uniform Limited
Liability Company Act adopted by the National Conference of
Commissioners on Uniform State Laws and is intended to update and
modernize the laws governing LLCs in New Jersey, by providing more
flexibility to LLCs organized or operating in New Jersey.
Several notable provisions in the new act differ from the current
act:
- Formation Changes
The current act states that an LLC may carry on any lawful
business, purpose or activity. The new act has clarified and
expanded the purpose of an LLC, stating that an LLC "may have
any lawful purpose, regardless of whether for profit."
Although not explicitly stated, the clear implication is that LLCs
may carry on nonprofit-type activities.
The current act provides that unless an LLC's certificate of
formation specifies the LLC is to have a perpetual duration, the
duration of such LLC is either the period specified in the
LLC's operating agreement or, if no such period is specified,
30 years from the date of formation of such LLC. The new act,
however, makes the default duration of an LLC perpetual, unless
otherwise limited by the LLC's operating agreement. This change
corresponds to the default perpetual duration for New Jersey
corporations.
- Increased Flexibility in Operating Agreements
The current act defines "operating agreement" as
"a written agreement among the members...as to the affairs of
a limited liability company and the conduct of its business."
The new act instead allows an operating agreement to be oral,
written or implied based on the way an LLC has operated, which is
consistent with the vast majority of other states' LLC
statutes. This benefits smaller New Jersey LLCs that may not have
written operating agreements but instead use oral or implied
agreements between members to guide how they do business.
In addition, and different from the current act, the new act
provides that an operating agreement may specify that an amendment
to such operating agreement may require the approval of a person
who is not a party to the operating agreement or the satisfaction
of a condition in order to be effective.
- Statement of Authority
The current act states that each member in a member-managed LLC,
unless otherwise provided in the operating agreement, has the
authority to bind the LLC. That provision does not appear in the
new act.
The new act incorporates the concept, not provided in the current
act, of filing a Statement of Authority, allowing a specific person
to act on behalf of the LLC. This provision clarifies that a member
is not an agent of an LLC solely by reason of membership and
recognizes the use of a publicly filed document to provide third
parties with reliable documentation of the authority of a specific
person to enter into transactions on behalf of an LLC (e.g.,
executing an instrument to transfer real property or otherwise
entering into transactions that bind the LLC).
- Resignation Rights
The current act entitles resigning members to receive the fair
value of their LLC interest upon resignation from the LLC.
Under the new act, however, a resigning member is no longer
entitled to receive the fair value of such member's LLC
interest as of the date of resignation. Instead, upon resignation,
a resigning member is dissociated as a member and retains only the
rights of an economic interest holder.
- Domestication of Non-New Jersey LLCs and Conversion of Non-LLC Entities
Unlike the current act, the new act provides procedures for the
domestication of an LLC formed under the laws of another state to
become a New Jersey LLC, as well as procedures for the conversion
of a different corporate entity (e.g., a corporation) to become a
New Jersey LLC. This change is in line with other business-friendly
states' statutes, like those of Delaware and Nevada.
The Day Pitney attorneys in our Parsippany office would be pleased
to discuss the new act and to answer any questions about its
application to current New Jersey limited liability companies.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
