Early this year, Ohio completed its overhaul of the Revised Code governing limited liability companies. The Ohio Revised Limited Liability Company Act (the “2021 Act”) became effective on April 12, 2021 but will not become applicable to Ohio limited liability companies until January 1, 2022. On that date, the 2021 Act will govern all companies formed in Ohio, even if they were formed prior to that date. We highlight below some of the most important changes reflected in the 2021 Act.
- Companies need not elect a “manager-managed” or “member-managed” type of management. Instead, members will have flexibility in defining the governance structure. This will allow for the implementation of variable governing structures, such as board of directors, oversight committees, management by members and managers, and so on. Importantly, the 2021 Act allows a company to file a “Statement of Authority” with the Secretary of State designating certain individuals as agents of a company. This change will prove to be helpful if a company does not wish to disclose the content of its operating agreement or identity of its members.
- Companies may be organized as “series” LLCs. Ohio is joining many states which have had Series LLCs for quite some time. Series LLCs permit a company to operate each “series” of property or obligations as a separate company, effectively acting as a different company to ensure separation of assets and liabilities. Series LLCs are popular among real estate holding companies as a cost-effective way to separate properties.
- Companies may limit or eliminate fiduciary duties of members, managers, and officers (except for the implied covenant of good faith and fair dealing). If a company so chooses, passive investors may be dismayed to find that they will have limited remedies against the company’s management.
- Companies may penalize a defaulting member, including forcing a sale or even forfeiting its interest.
- A person may become a member of a company without making a capital contribution.
- Operating agreements may provide enforceable rights to third parties who are not members of a company. These third parties could be lenders, franchisors, or other interested parties who want to take steps to make sure their interest is protected.
- Companies may now face statutory penalties for failure to continuously maintain or update the information regarding their statutory agent.
- Members shall receive “equal distributions”. Membership interests—not individual members—should receive equal distributions. This should be specifically addressed in operating agreements to avoid confusions.
- The 2021 Act allows direct suits between the members of a company.
This Article is not a comprehensive analysis of the 2021 Act and there may remain unanswered questions and ambiguities that will not be resolved until the 2021 Act has been put into practice. Feel free to contact our Business Group attorneys to discuss how the 2021 Act might affect your business.