Blog Article by Michael Austin
New Jersey’s Limited Liability Company Act was replaced by the New Jersey Revised Uniform Limited Liability Act (“RULLCA”), which took effect on March 18, 2013. RULLCA contained a special applicability provision allowing vestiges of the previous law to remain in effect until March 1, 2014, at which point the new law became applicable to LLC’s formed prior to RULLCA.
Owners of New Jersey LLCs have been afforded flexibility and operational advantages by RULLA that were not previously available under the prior law. Such changes include
- The new law removes some of the strict requirements by allowing LLC’s to operate in perpetuity, rather than the limited lifespan prescribed by the prior version of the law. RULLCA also relaxes the requirement for all LLC’s to have written operating agreements. The new regulations permit operating agreements to be oral, written, or implied based on the way the LLC has been operated historically.
- The new law still allows flexibility in distributions of profits to LLC members, as was the case under the original version of the act. Distributions are presumed to be on a per-capita basis based on ownership interest, unless otherwise agreed.
- Under the new law, LLCs are permitted to file a statement of authority with the Department of Treasury, authorizing agents or entities to bind the LLC.
- The new law removes a resigning member’s right to receive fair market value for their LLC interest, unless permitted in the operating agreement. Under the new law, the resigning member is disassociated as a member and will maintain only the rights of an economic interest holder.
- Remedies are available to oppressed and minority owners, permitting a member to seek dissolution of the company on the grounds that the managers or controlling members have acted or are acting in a manner that is directly harmful to the minority member. The new law also permits the appointment of a custodian by court order in lieu of dissolution.
- RULLCA is aimed to remedy some of the frustration associated with domesticating, merging, and converting existing entities under the old law.
Initially, RULLCA had provisions that were attractive to creditors, as well. Prior to the new law, creditors of an LLC member were allowed to charge the interest of that member in an LLC and receive distributions, as they may have become available. RULLCA provided additional recourse for creditors that were to take effect in March, 2014, however a January 2014 amendment stripped those provisions, leaving creditors with essentially the same limited recourse that they had prior to RULLCA.
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