10B — June 27 - July 10, 2014 — Owners, Developers & Managers — 1 -( % 80%28-'
Real Estate Journal
www.marejournal.com
C ONTRACTORS /S UBCONTRACTORS
By Marian Kornilowicz & Alexander Barth, Cohen Seglias Pallas Greenhall & Furman PC Is newer always better?: Important changes in the New Jersey limited liability company act
O
of statute and drafters need to be aware of the underly- ing statute and its impact
loquially known as RULLCA. Although the new law be- came effective on March 18,
tarily amended their operat- ing agreements to specify that RULLCA would gov- ern.) Therefore, it was not until March 1, 2014, when the prior act was repealed, that RULLCA applied to all NJ LLCs. What does this mean to you? Well, whether you are a new or existing LLC, RUL- LCA has upgraded and mod- ernized the rules for the formation and operation of LLCs. The key changes can be divided into two catego- ries: those that impact on the formation and governance of LLCs and those that affect the relationships between the members of LLCs. The Formation and Governance of LLCs There are four important changes regarding the for- mation and governance of an LLC: (1) Under the prior act, unless specifically stated, LLCs had a limited lifespan of thirty years. RULLCA provides that LLCs, like corporations, now have a perpetual duration unless specified otherwise. (2) RULLCA provides that an LLC’s operating agree- ment may be written, oral or, most importantly, IMPLIED based upon the way the parties have operated the company. This is a crucial change for LLCs without a written agreement or with an incomplete one, as it al- lows a court to establish an operating agreement and/ or its provisions through prior conduct. This can be a positive change or a very detrimental one, depending on what side of a dispute you may be, but it definitely pos- es risks for everyone. (3) LLCs can now file a Statement of Authority with the New Jersey Department of the Treasury , set t ing forth what individuals or entities can bind the LLC. Filing such a statement can be helpful as it puts third parties on notice as to who can contractually bind the LLC, minimizing problems with rogue employees or maintaining control among key members of the LLC. (4) RULLCA makes it eas- ier for an out-of-state entity to domesticate to a NJ LLC and for any entity to convert continued on page 11B
ver the last decade, limited liability com- panies (LLCs) have
company. At the same time, it provides liability protec- tion for the owners as well
become the e n t i t y o f c h o i c e f o r real estate investments in most ju- risdictions. T h e L L C e n t i t y o f - f e r s g r e a t
as favorable t a x t r e a t - m e n t . A l - though mat- ters such as t h e r i gh t s and obliga- tions of the memb e r s , e c o n o m i c
“Whether you are a new or existing LLC, RULLCA has upgraded and modernized the rules for the formation and operation of LLCs.”
on the LLC, especially when that underlying statute is revised. On September 19, 2012, New Jersey did not merely revise its statute governing LLCs, it replaced it with the Revised Uniform Limited Liability Company Act, col-
2013 (the “Effective Date”), it was not until March 1, 2014 that RULLCA applied to LLCs formed prior to the Effective Date. (Between the Effective Date and March 1, 2014, RULLCA applied only to LLCs formed during that period or to LLCs that volun-
A. Barth
M. Kornilowicz
flexibility in establishing the rights, obligations and economi c terms between the owners and in structur- ing the management of the
terms , and management are generally contractual in nature and governed by the parties’ operating agree- ment, the LLC is a creature
MARIAN KORNILOWICZ mkornilowicz@cohenseglias.com
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