New Limited Liability Company Act to Take Effect in New Jersey in 2013

800px-New_York_Harbor.jpgThe New Jersey Legislature passed sweeping reforms of the laws governing limited liability companies (LLC) in September 2012. The changes to the Limited Liability Company Act will take effect in March 2013, affecting newly-formed companies immediately. LLCs already in existence will continue to be governed by current LLC law until March 2014, when the new law becomes applicable to all LLCs in the state. The new law represents a major departure from current law, which is based on Delaware’s LLC laws. The Revised Uniform Limited Liability Company Act (RULLCA) forms the basis for the new law.

The new law began in the Assembly as AB 1542, where the RULLCA was introduced in January 2012. The Assembly passed it on May 24, 2012 by a vote of 77 to 1. The Senate passed a counterpart, SB 742, on June 21, 38 to 0. The Governor signed it into law as P.L. 2012 on September 19.

The RULLCA is the work of the National Conference of Commissioners on Uniform State Laws, commonly known as the Uniform Law Commission (ULC). The ULC prepares model statutes for a variety of purposes and proposes them to state legislatures in an effort to develop a standardized set of laws. It first developed the RULLCA in 1996, when LLCs were still a relatively new idea, and modified it in 2006. The New Jersey law is largely based on the 2006 version.

According to the ULC, Wyoming enacted the first LLC statute in 1977. LLCs allow businesses to protect their owners from liability, while also offering the “pass-through” tax treatment available in partnerships. Owners of LLCs are known as “members.” Before LLCs came along, corporations offered the highest level of liability protection, but without pass-through taxation. LLCs also offer greater flexibility in terms of structure and governance, with fewer strict requirements than corporations. Members may choose to operate the LLC themselves, or they may designate managers to run the company.

Seven states and the District of Columbia have enacted the RULLCA, including New Jersey. Bills based on the RULLCA are pending in Kansas and Minnesota. A side-by-side comparison of how the RULLCA differs from the Delaware LLC law could easily fill a book. A few key changes involve the basic requirements for an LLC’s formation. Under the new law, an LLC may serve “any lawful purpose” in its formation papers. If an LLC’s operating agreement does not identify a specific duration, the default duration is “perpetual,” meaning the company will continue to exist until formally dissolved. An LLC’s operating agreement may be entirely verbal under the new law, or it may be established entirely through the conduct of its members.

The new law expands remedies that members may have against the company or against majority members in the event of oppressive behavior. The law of corporations has long provided remedies for minority shareholders subject to unfair conduct by majority shareholders, and the new law provides analogous rights to LLC members. The statute also clarifies fiduciary duties that exist between members and provides that certain rights and duties may not be waived or limited by contract.

The business attorneys at Samuel C. Berger, PC offer fixed-fee packages of legal services to businesses and entrepreneurs who want to do business in New York and northern New Jersey. To speak to a member of our skilled legal team, contact us today online or at (212) 380-8117.

Web Resources:

Legislative history (PDF file), A1543, “Revised Uniform Limited Liability Company Act,” via
Full text (PDF file), P.L.2012, Chapter 50, approved September 19, 2012, Assembly, No. 1543
Revised Uniform Limited Liability Company Act (PDF file), National Conference of Commissioners on Uniform State Laws, 2006
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Photo credit: ‘New York Harbor’ by Uris at en.wikipedia. Later version(s) were uploaded by Mendel at en.wikipedia. [GFDL or CC-BY-SA-3.0], from Wikimedia Commons.