Articles Tagged with “New Jersey Limited Liability Company”

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Types of Entities Available Under New Jersey Business Law

New Jersey business law offers different options for the forms which business entities can take.  Each has its advantages and disadvantages.  Traditionally, the choices were corporations, partnerships and sole proprietorships.

Corporations are usually chosen, particularly in the context of small businesses, for the protection they provide.  The corporate form erects a shield, known as the “corporate veil,” which protects owners from the debts and liabilities of their business.  So, for example, if the corporation owes a supplier and doesn’t pay, the supplier can recover from the company but not the owners.  Likewise, if someone is injured by the company’s negligence they can only sue the business, not the owners.

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stock-photo-2760185-corporate-seal.jpgThe Legislature has recently made important changes to the laws governing New Jersey limited liability companies, which were effective March 1, 2014. The new revisions make drastic changes to the way New Jersey law treats limited liability companies. The law still allows the owners of a limited liability company to change the way they want their business to be run if they do not want it run in accordance with the law’s acts default provisions. However, when the LLC operating agreement is silent, the new Revised Uniform Limited Liability Company Act will govern.

Because these changes drastically alter the way LLCs are operated, profits are distributed, and decisions are made, it is essential to have your operating agreement reviewed by an experienced business attorney knowledgeable in the new Revised Uniform Limited Liability Company Act. Our attorneys are experienced in these areas and we have formed and crafted operating agreements to run hundreds limited liability companies. Please call us to have your LLC’s operating agreement reviewed by one of our business attorneys.

The following are some of the important changes.

Distributions. Under the old law, members of an LLC received distributions or profits and losses according to their ownership interest. Therefore, if two owners own the company 75 percent and 25 percent, they would receive profits and distributions of 75 and 25 percent, respectively. The new LLC law, however, requires that profits and losses be shared equally. Thus in that same company, rather than splitting the losses 75 and 25, each member would received half the profits, despite their unequal shares. Of course, this can be changed in the operating agreement, which can provide that distributions be made in proportion to ownership percentages, or based on any other reasonable formula.

Fiduciary Duties. The new LLC law creates an express fiduciary duty of loyalty for all members. Members cannot compete with their limited liability company or engage in self dealing. Thus, leasing property to the LLC or lending it money can be construed as self dealing. But again, this can be changed in the operating agreement.
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