Change is Good . . . You Go First!

change-architect-sign1If you are a member or manager of a Utah limited liability company (“LLC”) that was formed on or before December 31, 2013, changes are headed your way.  In 2013 Utah enacted the Revised Utah Limited Liability Company Act effective January 1, 2014.  However, LLC’s organized before the effective date remain subject to the old LLC Act unless they elected to be governed by the new New Act.  That is, until January 1, 2016.  This coming January 1st all LLC’s in Utah will be subject to the new New Act.  Following is a brief explanation of some of the most important changes:

  1. Duty of Loyalty.  Under the Old Act it was unclear if Members and Managers of an LLC owed each other a duty of loyalty.  The duty of loyalty provides that owners or managers of a company owe a duty not to take for themselves opportunities that the company would reasonably take advantage of.  The New Act expressly provides that Members and Managers of a Utah LLC owe each other the duty of loyalty.
  2. Oral Operating Agreements.  The Old Act did not provide for oral operating agreements.  Consequently, if an LLC did not have a written operating agreement, the LLC was governed by statutory defaults that often lead to unintended ownership interests.  The New Act allows for oral and implied operating agreements with the aim of reflecting the intentions of the Members even in the absence of a written operating agreement.  Of course, recognition of oral or implied operating agreements introduces more uncertainty in the LLC’s operation.  Therefore, it is best for all LLC’s to adopt a written operating agreement.
  3. Indemnification.  The New Act provides default indemnification to Members and Managers from liability for acts or payments made on behalf of the LLC so long as they are not acting outside their duty of care, loyalty, and good faith.  Under the Old Act indemnification was optional.
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