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by Jeffrey M. Shapiro and Eileen Overbaugh
On March 18, 2013, the Revised
Uniform Limited Liability Company Act (the "Revised Act") becomes
effective and replaces New Jersey's existing Limited Liability Company Act (the
"Current Act") with respect to all limited liability companies formed
on or after that date. On March 1, 2014, the Revised Act will also replace the
Current Act with respect to all limited liability companies previously formed
under the Current Act, unless a previously formed limited liability company
adopts an amendment to its operating agreement to be governed by the Revised
Act prior to March 1, 2014. With its adoption of the new law, New Jersey joins
a handful of other states that have enacted a form of the Revised Act.
This Article contains an overview of significant differences between the
Current Act and the Revised Act. This summary is not intended to be exhaustive
and practitioners are encouraged to review the Revised Act carefully.
Under the Current Act, duties of members and managers of limited liability
companies are based largely on common law, but can also "be expanded or
restricted by provisions in an operating agreement". In contrast, under
the Revised Act, the duties of loyalty and care, and the covenant of good faith
and fair dealing are codified. In a member-managed limited liability company,
each member owes the company and the other members a duty of loyalty and a duty
of care. A member must also act in accordance with the obligation of good faith
and fair dealing. In a manager-managed limited liability company, the duty of
loyalty and the duty of care apply to the managers and not the members and the
covenant of good faith and fair dealing applies to both the members and the
However, under the Revised Act, if it is not "manifestly
unreasonable," an operating agreement may restrict or eliminate fiduciary
duties owed by a member or manager. Specifically, the operating agreement may:
(i) restrict or eliminate the duty of loyalty; (ii) identify types or
categories of activities that do not violate the duty of loyalty; (iii) alter
the duty of care, except that the operating agreement may not authorize
intentional misconduct or a knowing violation of law; (iv) alter any other
fiduciary duty, including eliminating the particular aspects of that duty; and
(v) prescribe the standards to measure the performance of good faith and fair
dealing. In addition, the operating agreement may specify the method by which a
specific act or transaction that would otherwise violate the duty of loyalty
may be authorized or ratified by disinterested and independent persons after
full disclosure of all material facts. Note, though, that the Revised Act
expressly provides that elimination of the duties of care and loyalty are
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Jeffrey M. Shapiro is
a partner in the Corporate Department at Lowenstein Sandler LLP and co-author
of the definitive treatise on New Jersey corporate law and practice, New
Jersey Corporations and Other Business Entities.
Eileen Overbaugh is an associate in the Corporate Department at
Lowenstein Sandler LLP.