Utah enacts new LLC law - Effective July 1, 2012
Upcoming changes to Utah LLC law are coming this year. The legislative changes take effect for all new LLCs formed after July 1, 2012, and existing LLC will have the opportunity to opt-out until January 1, 2014. The major changes are highlighted as follows taken in part from the revised Utah Limited Liability Company Act (U.C.A. 48-3-100, et seq.) :
1. If an Operating Agreement is not adopted at formation, the new LLC will default to the statute. The statute allows that operating agreements can be oral, memorialized in one or more writings, or established through the course of conduct, or any combination thereof. In other words, when a partner says to another, “You can have 30%” and it is never documented, said partner may rely on the discussion and establish a binding Operating Agreement.
2. The new laws do not require public disclosure of names and addresses of the members or managers, a business purpose, or the name and address of anyone, not an organizer. This allows the owners to maintain some anonymity and keep personal information off the public record.
3. Our new LLC law will set forth with specificity the duties of loyalty required by managers or members. While that may increase concerns about personal liability, again, the operating agreement will be the defining document to state any exceptions to those duties and can be modified as the company requires.
We always recommend new business ventures to negotiate and determine the terms of an Operating Agreement at the outset of the venture. However, most clients–out of budgetary concerns–decline. To illustrate, I have a client who did not create an Operating Agreement, he formed his LLC by himself, and then added a partner at 50%. Aside from mistakes in the Articles of Organization, he also verbally agreed with a new third partner for 30% and the second partner reducing to 20%. We were able to, at that time, eventually negotiate the third partner out of the company because there were no documents proving his ownership. He had never signed an Operating Agreement. For a new company formed after July 1, 2012, that same third partner could use the verbal statements to establish his ownership.
At Pearson Butler Carson & Cook, we focus our work on business owners and inventors, setting up new companies, and drafting Operating Agreements to suit the needs of the business owners.
Contact us now to discuss these changes and how they impact your business.