About T.J. Hooker

T.J. Hooker is an associate with Anderson Jones PLLC, Raleigh, N.C. He focuses primarily on construction law, business law, real-estate litigation and collections.

Emerging Trends in New LLC Acts

Although the Limited Liability Company (LLC) is still a relatively new form of unincorporated business structure, LLCs are now outpacing newly formed corporate filings in most states and are quickly becoming the predominate form of new business entities across the country. The appeal of the LLC is obvious; it combines the corporate- style limited-liability benefits to its owners with the pass-through taxation benefits of partnerships. With these benefits, it is no surprise that contractors across the country are now choosing LLCs in lieu of corporations or partnerships when selecting their business structure.

Every state has now adopted an LLC act, but these acts vary significantly from state to state. Despite the growing popularity of the LLC structure, many states are still operating under old acts implemented more than 20 years ago, and many of these acts have not been significantly revised. Instead, they have been amended on an as-needed basis in an attempt to keep up with emerging LLC developments and case law. This has created piecemeal and disorganized acts governing LLCs.

To solve these problems, states across the country have been extensively revising their LLC acts or implementing completely new acts. Currently, 11 states and the District of Columbia have formally enacted new LLC acts based on the Revised Uniform Limited Liability Company Act (RULLCA). These states include Alabama, California, Florida, Idaho, Iowa, Minnesota, Nebraska, New Jersey, South Dakota, Utah and Wyoming. In addition, South Carolina has been considering adopting the RULLCA. Other states, like North Carolina, which hasn’t officially adopted the RULLCA, have enacted new LLC acts and looked to states that had already adopted the RULLCA for guidance.

These new LLC acts are reshaping the LLC landscape. Contractors of existing LLCs and those wanting to form LLCs should be aware of the potential impact changes to their state’s LLC act can have on their company. Contractors need to be aware that the LLC act they initially filed under—and have been operating under—may now be significantly different or may no longer even be applicable. Failing to review newly revised or implemented acts may lead to unintended or adverse consequences, especially in states that are already operating under a new LLC act.

While a state-by-state analysis of new LLC acts is beyond the scope of this article, there are several trends emerging from states that have already enacted new LLC acts. These trends may soon be universally applicable and it is beneficial for the contractor operating or considering an LLC to be aware of them.

The Operating Agreement

Arguably, one of the most significant and widespread trends emerging from the new LLC acts is that many of the acts are eliminating the requirement that the operating agreement be in writing. Under many of the old LLC acts, an operating agreement was commonly defined as a written agreement between its members. Under many of the new acts, however, an operating agreement can now be a written, oral or implied agreement between its members. This is a broader definition of what qualifies as an operating agreement and essentially allows any type of agreement between members to become part of the operating agreement governing the LLC.

Although this change provides greater flexibility within the business because companies no longer need to adhere to a strict operating-agreement structure requirement, it also opens the door for increased internal litigation. Under these new LLC acts, internal disputes among members are likely to increase when operating-agreement terms are ambiguous or when members claim there was an oral or implied operating agreement.

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