In 2013, the Revised Uniform Limited Liability Company Act became law in NJ. As of April, 2014, all limited liability companies, regardless of when they were formed, are subject to the new law. What does this mean to you and how does it impact your business?
Under the new LLC law, operating agreements can be written, oral, implied or both. You can also file a “statement of authority”, that documents the limited authority of any person holding a position with the LLC. The statute now provides remedies for “oppressed” minority LLC members, similar to protections afforded to minority stockholders of closely held corporations.
Good LLC document practice is more important than ever. Major decisions should be recorded, either by resolution, or a member’s written consent in lieu of a meeting. If your day to day actions are inconsistent with the terms of your operating agreement, you could be exposed to arguments that the agreement was “orally” amended. This risk is limited and those types of arguments greatly weakened when you’ve got records confirming members’ consent to the specific action at issue. Best practice includes documenting all important decisions, including the purchase or sale of major assets, entry into a lease or any other material contract, or, if the company is borrowing or lending money, or acting as a guarantor for any obligation.
Take a moment to pull your company files. Should your operating agreement be updated? Does your LLC even have one? Are there clear records of important company decisions? If you have partners or family in the business, consider key buy/sell issues, and a clear succession plan and exit strategy. If you conduct business outside the State of New Jersey on a consistent basis, you probably should qualify the company to do business in those other states.
When the time comes to provide your company records to a lender, buyer, or (and yes, this happens), to an adversary in a litigation, the heartburn is greatly diminished when all your records are in order and company decisions are documented.