New Jersey Enacts Revised Uniform Limited Liability Company Act
New Jersey is among a handful of states to enact a form of the Revised Uniform Limited Liability Company Act (“Re-ULLCA”). In so doing, New Jersey follows California, Idaho, Utah, Wyoming, Nebraska, Iowa and the District of Columbia. The New Jersey act, like the original, is primarily a series of default rules that govern relations among members in situations not addressed in their operating agreement (N.J.S.A. 42:2 C-1, et seq.).
While every state has a statute authorizing the formation of LLCs, the vast majority of these statutes are “first generation,” promulgated in the 1990s and marginally amended in later years. These first generation statutes largely do not take into account the last two decades of developments in the area. Conversely, Re-ULLCA, promulgated in July 2006, is a comprehensive, current law. The recent New Jersey adaptation of this second-generation statute incorporates its significant changes and innovations, including:
- Dissociation of a member – A resigning member will no longer be entitled to receive the fair value of his or her LLC interest as of the date of resignation. The resigning member is dissociated as a member and only has the rights of an economic interest holder.
- Domestication and conversion – The process of domesticating, merging and converting an entity other than a domestic LLC is made more flexible and streamlined.
- Permissible form of operating agreement – Operating agreements are no longer required to be in writing. They may be oral, written or implied based on the way the LLC has operated, in conformity with the organization of many LLCs formed in New Jersey.
- Perpetual duration – LLCs will no longer have a limited life, in conformity with the duration of corporations.
- Profits, Losses and Distributions – Distributions will be made on a per capita basis unless otherwise agreed. Allocations of profits and losses will be on a per capita basis.
- Remedies for deadlock and oppression – Minority owners are permitted to seek a court order dissolving the company on the grounds that the managers or the controlling majority have acted or are acting in a manner which is oppressive and was, is or will be directly harmful to the member. Less drastic remedies are also available, such as the appointment of a custodian.
- Shelf LLCs – Permits the filing of a certificate of formation without having at least one member, but states that the LLC is formed when it has at least one member.
- Statement of authority – LLCs are allowed to file a statement of authority with the division of taxation (or in the case of real estate, in the office where real estate records are maintained) authorizing certain people or entities to bind the LLC.
The New Jersey Re-ULLCA will take effect on March 18, 2013. It will apply to all New Jersey LLCs beginning on April 1, 2014. It supersedes the New Jersey Limited Liability Company Act, which will be repealed as of April 1, 2014.