The New Jersey statute that governs limited liability companies (LLCs) has been revised. On September 19, 2012, Governor Christie signed into law A-1543, entitled the Revised Uniform Limited Liability Company Act (Revised Act). This new law takes effect on March 18, 2013, with special repealer to take effect on March 1, 2014.1 The Revised Act replaces New Jersey’s current law, the New Jersey Limited Liability Company Act (Current Act), which became effective in 1994.
Certain highlights of the Revised Act include:
- Company Duration. The Revised Act provides for LLCs to have perpetual duration, as is the case with corporations; the default rule under the Current Act that LLCs have a limited life has been eliminated.
- Operating Agreements. The Current Act defines an operating agreement to be a written agreement; the Revised Act provides that operating agreements may be oral, in a record, implied or in any combination thereof. Thus, a written agreement is no longer required, but may be desired.
- Statements of Authority. Under the Revised Act, a member is not an agent of the LLC solely by reason of being a member; statutory apparent authority has been eliminated. The Revised Act permits the filing of statements of authority authorizing only certain people or entities to bind the LLC.
- Management. Like the Current Act, the Revised Act provides, in the absence of a contrary provision in the operating agreement, that the LLC is member-managed. However, the Revised Act provides for differences in each member’s rights in management and for the requirement of unanimous consent for approval of acts outside the ordinary course of the activities of the LLC. Accordingly, unanimous member consent may be required for more activities than those specified under the Current Act.
- Distributions. Absent contrary agreement, the Revised Act provides for distributions to be made on a per capita basis. There is no longer a default rule for allocation of profits and losses; those allocations are left to the decisions of the members.
- Deadlock and Oppression. The Revised Act contains remedies for oppressed minority owners, allowing for dissolution of the company and for appointment of a custodian on proper application to a court of competent jurisdiction.
- Dissociation of a Member. The Revised Act no longer provides a resigning owner with the entitlement to receive the fair value of an LLC interest as of the date of resignation; instead, the resigning owner is considered to be dissociated and has the rights only of an economic interest holder.
- Conversion. The Revised Act has flexible provisions for domesticating, merging and converting an entity other than a domestic LLC, provided it is permitted by the law under which it was formed.
In the real estate world, as in others, single purpose entities are frequently formed for the consummation of transactions. LLCs have been a popular vehicle in New Jersey for these purposes. The Revised Act should be consulted for its impact on decisions concerning the formation and use of domestic LLCs going forward.
Source: In the Zone