How Will The New LLC Act Affect Your Company?
In 2010, the Nebraska Legislature enacted the Nebraska Uniform Limited Liability Company Act, Neb. Rev. Stat. § 21-101—21-197 (the “New LLC Act”). LLCs formed on or after January 1, 2011, were formed under the New LLC Act, while LLCs formed prior to January 1, 2011, continue to be governed by Nebraska’s former Limited Liability Company Act (Neb. Rev. Stat. §21-2601—21-2654). Beginning January 1, 2013, the New LLC Act will apply to all LLCs regardless of the date of formation.
The New LLC Act is more comprehensive than the former act. The New LLC Act contains some mandatory provisions that will apply regardless of what the company’s operating agreement provides. However, most of the provisions are default provisions that will only apply if the operating agreement is silent on the issue.
Expanded Management Rights
One example of a change in the default rules is the member’s management rights, at least with respect to a member-managed company. Under the former act, the management rights were vested in the members in proportion to the person’s contribution to the capital of the LLC. NEB. REV. STAT. § 21-2615. Under the New LLC Act, each member has equal rights in management and a difference among the members is decided by a majority of the members. NEB. REV. STAT. § 21-136(b). However, as previously noted, this is a default rule and only applies if the operating agreement is silent on the issue.
The New LLC Act also sets forth standards of conduct for the members, managers or both depending on the management structure of the LLC and the duty. NEB. REV. STAT. § 21-138. The duties identified in the New LLC Act include a duty of loyalty, a duty of care and the contractual duty of good faith and fair dealing. The duty of loyalty includes, among other things, a duty to refrain from dealing with the company as a person having an interest adverse to the company or on behalf of a person having an interest adverse to the company. NEB. REV. STAT. § 21-138(b). Thus, for example, if a manager of a limited liability company purchases property or services from another company that the manager also represents or has a significant interest in, the manager should carefully consider the obligations and limits imposed on the manager by the duty of loyalty under the circumstances. The duty of loyalty also prohibits competing with the company and requires a member or manager, as applicable, to account to the company for any property, profit or benefit derived from appropriation of a limited liability company opportunity. NEB. REV. STAT. § 21-138(b).
Operating Agreement Flexibility
The New LLC Act permits the operating agreement to restrict or eliminate certain duties if not manifestly unreasonable. NEB. REV. STAT. § 21-110. An operating agreement can also identify specific types of activities that do not violate the duty of loyalty. Restricting or eliminating the duties provided in the New LLC Act should be carefully analyzed to ensure that the New LLC Act permits the restriction or elimination, and the company, members and managers should carefully consider the potential impact based on their specific circumstances, including the identity of the members and the purpose of the company.
If you have been considering revising your articles of organization (now referred to as a Certificate of Organization) or your operating agreement, now is an opportune time to review your limited liability company documents. An attorney at Croker Huck can assist you in making changes to your documents and identify areas to address based on the changes in the law.
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