Is your company a registered LLC in the State of New Jersey? If so, there was a recent change to the law that may impact you or your business.

This 2013 change to the Limited Liability Company Law impacts LLCs that have no agreements or have not amended their agreements . Some important changes and issues to be aware of:

1.       The changes apply to all LLC s formed after 03/18/2013 and will apply to all LLCs after 03/01/2014.

2.       Regular and liquidating distributions of cash

  • Old Law: Cash distributions would be based on an agreed upon value or percentage of ownership.
  • New Law:  The new distribution of  cash must be equally distributed shares to members and dissociated members and not based on percentage of ownership.

3.        No buy out of resigning owners interest

  • Old Law: Resigning member gets paid fair marketing value for their ownership percentage.
  • New Law: Resigning member is not entitled to the payment of fair value for their interest instead, the member becomes a “dissociated member” entitled to continue receiving distributions if  funds are available. A dissociated member has no voting rights etc.

4.       Remedies for Oppression of Rights Based on Partnership Agreement

  • Old Law: Had no action
  • New Law: Remedies similar to corporate statues.

5.       Fiduciary Duties

  • Old Law: Partners has no fiduciary duties.
  • New Law: Fiduciary duties set forth in the statue such as Duty of Care , and Duty of Loyalty.

6.       Voting on Ordinary Matters

  • Old Law: Voting was based on ownership percentage.
  • New Law: Each member has equal voting rights.

6.       Contractual obligations of good faith and fair dealing.

  • Old Law:  The previous statue did not include good faith and fair dealing provisions.
  • New Law: Managers and members must exercise rights and discharge duties under the LLC operating agreement and under the Statue with the contractual obligation of Good faith and fair dealing.

7.       LLC Operating Agreements

  • Old Law: The statue is unclear whether an LLC operating agreement is required , but if the parties have an LLC agreement , it must be in writing.
  • New Law: An LLC operating agreement may be written, oral or implied. However, it should be noted that if an operating agreement is not written it is more difficult to prove your intentions that differ from statutory law and therefore, a written agreement is recommended,Eg cash distributions equal as opposed to allocation on capital percentages.

The bottom line is that to ensure that your partnership interests are protected, you must have a written agreement that outlines how you want your LLC to operate.