Ringing in the new year in 2014 brought with it the Utah Revised Uniform Limited Liability Company Act, Utah Code Ann. §§ 48-3a-101 et seq. (“New Act”). The New Act introduces changes to the law governing Utah limited liability companies (“LLCs”) and applies to all LLCs formed on or after January 1, 2014. Existing LLCs (i.e., those formed on or before December 31, 2013) will become subject to the New Act on January 1, 2016, unless the LLC opts to become subject to the New Act earlier.
The New Act is a complete revision of the LLC statute. It is complex and has many nuances. Some of the key changes under the New Act include the following:
- Certificates of Organization (rather than Articles of Organization) are filed with the Division of Corporations and Commercial Code (“Division”) to effect the formation of an LLC.
- The Certificate is only required to provide the name of the LLC, registered agent information and whether the LLC is a “low-profit” LLC, as defined in the New Act.
- A Statement of Authority may be filed with the Division to identify managers or members and their authority to act on behalf of the LLC, or limitations on such authority, including authority to transfer real property.
- Third parties doing business with the LLC may rely on the information contained in a Statement of Authority.
- A certified copy of a Statement of Authority may be recorded with the county recorder in the county in which the LLC owns real property and is conclusive as to the information contained in such statement.
- Statements of Authority automatically expire after 5 years.
- LLCs are permitted to have perpetual existence instead of the former 99-year limit on the period of duration.
- Oral and implied operating agreements and amendments are permitted.
- A member is deemed to have agreed to an operating agreement when he/she/it becomes a member regardless of whether the new member signs any document.
- Unless the operating agreement specifies a different standard, managers in a manager-managed LLC (and members in a member-managed LLC) have a duty of loyalty (i.e., required to give preference to interests of the LLC over his or her personal interests) and a duty of care (i.e., required to exercise prudence in making business decisions).
In response to these key changes, we have prepared new forms of formation and organization documents for LLCs subject to the New Act.
These key changes can create pitfalls for the unwary. For example, although the New Act permits oral or implied operating agreements, we advise against such agreements because they are very difficult to prove and enforce. Instead, we recommend that all agreements, and all amendments to such agreements, be in writing. Because new members will be automatically bound by an LLC’s existing operating agreement, a prospective member should carefully review the operating agreement of the company prior to joining. To avoid future disputes regarding who has authority to act on behalf of the LLC, we advise our clients to file Statements of Authority with the Division.
While these changes brought about by the New Act are significant, we see no particular advantage for existing LLCs to elect to be subject to the New Act prior to the January 1, 2016 effective date. However, if you are a member or manager of an LLC that was formed on or before January 31, 2013, you should carefully review, in consultation with your legal counsel, the operating agreement of your company to determine what amendments, if any, should be adopted to conform to the New Act prior to January 1, 2016. If you have questions about the New Act or how it will affect your existing LLC, please contact Bruce Babcock, Joseph Hinckley or another member of Jones Waldo’s Business Department.