Ringing in the new year in 2016 brought with it the application of the Utah Revised Uniform Limited Liability Company Act, Utah Code Ann. §§ 48-3a-101 et seq. (“New Act”) to Utah limited liability companies (“LLCs”) organized prior to 2014. Prior to January 1, 2016, the New Act applied only to LLCs formed on or after January 1, 2014 or existing LLCs (i.e., those formed before January 1, 2014) which affirmatively opted to become subject to the New Act. All LLCs organized in Utah are now subject to the New Act.
The New Act is a complete revision of the prior LLC statute. The New Act 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, if they so state in their Certificate of Organization, 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/her/its personal interests) and a duty of care (i.e., required to exercise prudence in making business decisions).
A few of the provisions in the New Act create pitfalls for the unwary. However, those pitfalls can generally be avoided with a carefully drafted operating agreement. 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 the operating agreement be in writing, and that the agreement, by its terms, requires that all amendments be in writing. Because new members will be automatically bound by an LLC’s existing operating agreement, we advise prospective members to carefully review the operating agreement prior to joining. To provide clarity regarding who has authority to act on behalf of the LLC, we generally advise our clients to file Statements of Authority with the Division.
If you are a member or manager of an LLC that was formed before January 1, 2014, you should carefully review, in consultation with your legal counsel, your operating agreement to determine what amendments, if any, should be adopted to conform to the New Act. If your LLC does not have a written operating agreement, you should immediately seek legal counsel to assist with preparing one. 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.