New Jersey’s new law affecting every limited liability company (“LLC”) is the Revised Uniform Limited Liability Company Act (“RULLCA”), which took effect September 19, 2012. RULLCA controls all LLC’s formed on or after March 18, 2013, and all LLC’s regardless of when formed as of March 19, 2014. This final part of three parts explaining elements of RULLCA will address the following areas which have changed in the new Act — distributions, resignation and withdrawal, and the rights of members to information.
As to distributions, the old LLC law provides that, unless the operating agreement provides otherwise, distributions are to be made based on “the agreed value … of the contributions made by each member.” Again highlighting the importance of the operating agreement, RULLCA provides that distributions prior to dissolution or winding up are to be “in equal shares among members and dissociated members.” That is contrary to the ordinary agreement by members, which would provide for distributions by their percentage of ownership. The parties must have their operating agreement set forth the terms of their agreement as to distributions.
As to resignation of a member and the right to any payment or “distribution” upon such withdrawal, the old LLC law provides for six months’ notice to withdraw and the payment of any distribution provided under the operating agreement or, if not provided, then payment of fair value for the interest held, less all applicable discounts. In contrast, under RULLCA, a member may withdraw at any time, and there is no entitlement to any distribution upon withdrawal. Of course, the members themselves may agree otherwise and set forth that entitlement within their operating agreement.
Finally, under the old LLC law in New Jersey, each member is entitled to receive information on the business and financial condition of the company, tax returns, member addresses, the operating agreement itself, and the value of cash and other assets held by the LLC. The manager may maintain the information in confidence for such time as reasonably believed necessary to maintain trade secrets or other information the disclosure of which is believed not in the best interests of the LLC or required by a third party to keep confidential.
In contrast, RULLCA sets forth a procedure and time in which to secure LLC documents. In general, RULLCA provides that the LLC shall furnish to each member any information concerning the company‘s activities, financial and other wise, that is material to the member pursuant to its operating agreement and, on demand, any other information. Each member has that duty to provide information as well. However, in a manager managed LLC, this information shall be provided by the manager if sought by the member for a “a purpose material to the member’s interest as a member,” and the member must make a written demand “describing with reasonable particularity the information sought and the purpose for seeking the information.” The law provides a ten day period for the LLC to respond and inform the member when and where the LLC will provide the information and, if declined, the reasons why the information will not be provided.
As shown, a careful review of your current operating agreement should be made and appropriate changes and supplements to address those areas under RULLCA that leave to the members in their operating agreement to clarify and change what RULLCA provides. With the March deadline looming for the RULLCA to apply to all LLC’s in New Jersey, it is important to make that review and update soon.