On January 1, 2016, all Utah limited liability companies will be subject to the Utah Revised Uniform Liability Company Act (“New LLC Act”). The New LLC Act addresses several important aspects of an LLC, including, but not limited to:
· Voting Rights. Under the New LLC Act, each member has one vote regardless of capital contributions or percentage interests in the LLC (e.g. in a 2 member LLC, each member would have 1 vote, even if Member A contributed $9000 and Member B contributed $1000). Unless an operating agreement overrides the default position, then this could be a significant issue for LLC members.
· Per Capita Distributions. The New LLC Act’s default provision is that interim distributions should be made equally to LLC members. Again, unless an operating agreement overrides the default position, then this could be a significant issue for LLC members.
· Statements of Authority. If an LLC would like to affirmatively set forth persons or positions that have authority to act on behalf of an LLC, then the LLC may want to consider filing a Statement of Authority with the State of Utah. Statements in the articles of organization or certificate of organization should no longer be relied on by third parties.
· Fiduciary Duties. The New LLC Act sets forth specific fiduciary duties; for example, the duty of loyalty, the duty of care, and the duty of good faith and fair dealing. Included in the duty of loyalty is a duty not to compete for members in a member-managed LLC and managers in a manager-managed LLC. The operating agreement may need to clarify these applicable standards.
· Duty of Candor. Under the New LLC Act, an LLC is required to provide material information to the members regarding issues that are presented to the members for consent or approval.
· Member-Creditors. If a member has loaned money to an LLC, then the members may want to amend their operating agreements, if needed, to provide that member-creditors have equal priority with third party creditors if the LLC is dissolved.
· Duration. An LLC may now exist in perpetuity. If an existing LLC’s organizational document limits the term, it will need to be amended to allow for perpetual existence, if desired.
We encourage LLC members to meet with an experienced attorney to review their LLC and make any needed changes under the New LLC Act. Attorneys at Hillyard, Anderson, & Olsen are available to assist with your business and can be reached at (435)752-2610.