Pending approval by Governor Christie, New Jersey will adopt a new set of laws pertaining to the formation and operation of limited liability companies.
By Joseph Olender
In 2011, the New Jersey Assembly proposed Bill No. 1543, which would change the way that limited liability companies (LLCs) in the state are created and operate. The bill was created in an attempt to fill gaps in New Jersey law regarding the operation of LLCs, as well as to update existing law that had become outdated. The bill passed unanimously through the Assembly on May 24th and the Senate on June 21st, needs only the signature of Governor Christie to become law. This bill, a version of the Revised Uniform Limited Liability Company Act (RULLCA), effectively repeals the New Jersey Limited Liability Company Act (NJLLCA), and replaces it with a modern regulatory scheme for the creation and operation of limited liability companies in New Jersey. The RULLCA, as developed by the National Conference of Commissioners on Uniform State Laws (NCCUSL), is a significant advancement and common sense approach to the governing of limited liability companies. New Jersey is one of many states to propose a bill which would adopt a version of the RULLCA. The bill would significantly impact the way LLCs do business, and assemblymen hope that it will boost job growth potential in the state. The bill is designed to change some aspects of the law currently in place via the NJLLCA, and also deal with areas of the law that New Jersey has not yet covered. The bill would mandate some significant changes including:
- Perpetual Duration. Eliminates the default rule that LLCs have a limited life. As is already the case with New Jersey corporations, New Jersey LLCs would have perpetual duration.
- Permissible form of operating agreement. Permits operating agreements to be oral, written or implied based on the way the LLC is operated.
- Distributions. Unless otherwise agreed upon, distributions are made to members on a per capita basis.
- Statements of authority. It allows an LLC to file statement s of authority with the Division of Revenue in the Department of the Treasury, authorizing certain individuals or entities to bind the LLC.
- Disassociation of a member. This would eliminate a major pitfall for the unwary practitioner forming an LLC in New Jersey. A resigning owner is no longer entitled to receive the fair value of his or her LLC interest as of the date of resignation. Rather, upon, resignation, the resigning member is disassociated as a member and only has the rights of an economic interest holder.
- Remedies for deadlock and oppression. It extends many of the traditional remedies available at common law or pursuant to statute to LLCs. It permits a member to seek a court order dissolving the company on the grounds that the managers or those members in control of the company have acted or are acting in manner that is oppressive and was, is, or will be directly harmful to the member. It also permits a less drastic form to resolve deadlock in the form of an appointed custodian.
If signed by Governor Christie the bill will become effective after 180 days and will govern all LLCs formed after its effective date. Following the first day of the 18th month following the bill’s enactment, it will apply to all New Jersey LLCs.