New Jersey Adopts New Law to Bring Significant Changes to New Jersey Limited Liability Companies
November 28, 2012
On September 19, 2012, Governor Chris Christie signed into law the New Jersey Revised Uniform Limited Liability Company Act (the “Act”), representing the first major overhaul of the New Jersey law governing limited liability companies (“LLCs”). The Act embodies New Jersey’s adoption of the Revised Uniform Limited Liability Company Act proposed by the National Conference of Commissioners on Uniform State Laws in 2006.
Since its enactment in 1993, the New Jersey LLC law has undergone several amendments to keep pace with developing business trends. The Act is the legislature’s effort to harmonize the various aspects of the current law, while providing for greater flexibility in the LLC business model.
Some of the most significant revisions to the current New Jersey LLC law to be implemented by the Act are as follows:
- Perpetual Duration: Under the current law, an LLC has a lifespan of 30 years unless otherwise provided in the certificate of formation. The Act eliminates the limited lifespan of an LLC and grants an LLC a perpetual duration, similar to a corporation.
- Purpose: Whereas the current law does not mention non-profit activities, the Act now allows an LLC to be formed for any purpose permitted by law, whether for profit or non-profit, similar to a corporation.
- Operating Agreement Form: Under the current law, in the absence of a written operating agreement or if the operating agreement does not address a matter, the provisions of the statute apply by default. This general concept is continued by the Act. However, the Act provides that an operating agreement may be oral, written, implied or any combination thereof. As such, even in the absence of a written agreement, the provisions of the Act will not necessarily govern; rather, the oral and/or implied agreement of the parties as to the LLC’s operations will trump the Act’s provisions.
- Flexible Management Structure: The Act allows the LLC’s management structure to be set forth in the operating agreement, and specifically discusses management by one or more managers (who may or may not be members) and management by the members. However, the Act provides greater flexibility than the current law, specifically providing for alternative management structures, such as a board of directors and officers, similar to the management structure of a corporation.
- Fiduciary Duties: The Act allows the operating agreement to alter the fiduciary duty of care, if not “manifestly unreasonable” (except that it cannot authorize intentional misconduct or knowing violations of the law), and to alter any other fiduciary duty, including eliminating particular aspects of that fiduciary duty. The current law does not contemplate altering or eliminating a fiduciary duty.
- Indemnification: While the current law provides that indemnification of a member or manager is permissible, the Act makes such indemnification mandatory, unless otherwise altered or eliminated by the operating agreement.
The Act takes effect 180 days from its enactment (i.e., March 18, 2013) and will immediately govern all LLCs formed after this date. However, the Act will not be effective for LLCs formed prior to March 18, 2013 until the first day of the 18th month following its enactment (i.e., March 1, 2014).
It will be important for individuals seeking to form a new entity in New Jersey (as well as business owners who have previously formed an LLC) to consult with corporate counsel and discuss the ways in which the Act may affect their new or existing LLCs.
For more information regarding the New Jersey Revised Uniform Limited Liability Company Act and how it will affect New Jersey LLCs, please contact: