In 2012, New Jersey enacted the Revised Uniform Limited Liability (LLC) Act. The revised Act governs all LLC’s formed in New Jersey after March 18, 2013, and will govern all New Jersey LLC’s formed prior to that date, beginning on March 1, 2014. The Revised Act governs the rights and obligations of all LLC members, especially as to LLC’s without an operating agreement. Here are some highlights of the Revised Act:
- Share of LLC profit and losses – under current law, unless otherwise provided in an operating agreement, each member’s share of LLC profits and losses are based upon the member’s percentage of the total capital contribution. Under the Revised Act, unless the operating agreement provides otherwise, each member is entitled to an equal share of LLC profits and losses.
- Life Span of an LLC-under the current law, unless otherwise stated, the life span of an LLC is 30 years. Under the Revised Act, the life span is perpetual, unless otherwise stated.
- LLC’s can now operate as non-profit entities.
- Form of Operating Agreement – under the Revised Act, an operating agreement can be set forth using a written agreement, an oral agreement, implied from the LLC’s conduct, or any combination of these three methods.
- LLC liabilities now belong solely to the LLC. These liabilities do not become the debts of the LLC’s members or managers.
- Limitation on distributions – under the Revised Act, unless otherwise stated in the operating agreement, LLC distributions must be made in equal shares among the members.
- LLC’s may merge with another business entity, LLC’s can covert to an entity form that is not an LLC, a non-LLC can covert to an LLC, and a non-NJ LLC can change its state of formation to New Jersey and vice versa.
There are many other provisions of the Revised Act, so it is very important to consult with legal counsel to make sure that your LLC Operating Agreement has been updated for the new law. When an LLC has more than one member, all the rights and obligations of each member in all possible circumstances should be very explicit in the Operating Agreement, so to prevent possible future litigation between LLC members.
While this Revised Act mostly deals with legal issues, the changes may cause tax ramifications to the LLC members. If you have any questions about the New Jersey LLC law changes, please contact Andrew D. Ross, CPA at Bedard, Kurowicki & Co., PC at (908) 782-7900 x 113 or visit www.bkc-cpa.com.