The New Connecticut Uniform Limited Liability Company Act (the “Act”) has now been in effect for two years. The Act applies to all limited liability companies in Connecticut. The Act generally respects the terms of existing Operating Agreements; however, now that we have had some time to see the Act in practice, here are Four things we think you should know.
- Default Provisions. Unless the Operating Agreement provides otherwise, unanimous consent is required to amend the Operating Agreement and admit new members. This provision could give a minority member a great deal of power. Importantly, LLCs with operating agreements that do not address these specific votes should strongly consider whether the operating agreement should be updated.
- Prohibited Provisions. The Act prohibits the inclusion of several provisions in operating agreements, including but not limited to the following: an Operating Agreement cannot (a) subject the LLC to the laws of another state in an attempt to escape the application of the Act, or (b) eliminate certain fiduciary duties – such as good faith and fair dealing - between and among its members.
- Members. The Act provides that new members are now automatically deemed to assent to an existing operating agreement without signing it upon becoming a member. Obviously, we still advise our clients that best practice is to obtain a new member’s signature on the operating agreement. Further, in the absence of consent from all of the members, a transferee of a member’s interest will only receive an “economic interest” (the right to receive distributions as provided in the operating agreement). The transferee will not be entitled to vote or participate in the management of the LLC. Importantly, a judgment creditor of a member of an LLC is not entitled to assume the entire membership interest of a member, but rather is only entitled to a lien on the debtor member’s interest.
- Filing Requirements. Annual reports are due between January 1 and April 30 of each year, not the anniversary month of the LLCs’ formation. The Act does not require the Secretary of State to send out reminders of the filing deadline, so it is important to mark your calendars now.
Now that we know more about the Act’s application and how it will affect LLCs, it is important to review your operating agreement with counsel to ensure it is accomplishing your desired objectives.