The New Jersey Uniform Limited Liability Company Act (the Act) was enacted in 1994 and governs NJ limited liability companies (LLCs). The Revised Uniform Limited Liability Company Act (the Revised Act) is the first major revision to the Act since its inception. Only NJ LLC's formed after March 18, 2013 will currently be governed by the Revised Act. Effective March 1, 2014 however, all LLCs will fall under the authority of the Revised Act.
The amendments are designed to bring the Act more in line with the Model Revised Uniform Limited Liability Company Act. As of this posting, only seven states and the District of Columbia have adopted the RULLCA in some fashion. While it is beyond the scope of this post to identify all changes made by the amendment, I have listed some of the major changes below.
1. Perpetual Duration. Under the Revised Act LLCs will have perpetual duration while under the old Act duration was limited to 30 years.
2. Business Purpose. The Revised Act allows an LLC to be formed for any business purpose, including operating as a non-profit organization.
3. Oral Operating Agreements. Believe it or not, oral operating agreements are now allowed under the Revised Act. Under the old Act, oral agreements were not allowed. If the agreement was not in writing it did not exist. Under the amendments, a course of conduct or behavior can be used as evidence to support the terms of an "oral agreement."
4. Indemnification. The Revised act now requires that the LLC indemnify and hold harmless its members and managers. Under the old Act indemnification was discretionary.
5. Fiduciary Duties. Fiduciary duties are allowed to be altered if not "manifestly unreasonable" although the operating agreement cannot authorize or otherwise allow intentional misconduct/violation of laws.
Other issues affected by the amendments relate to charging liens, disassociation, oppression and limitations on a member's liability to another member - to name a few. While we always recommend that shareholder operating agreements are reviewed every few years, it is now critical that LLCs in existence prior to March 18, 2013 have their operating agreements updated to conform to the new rules.