Unlike the New Jersey Business Corporation Act (“BCA”), the Limited Liability Company Act, N.J.S.A. 42:2B-1 to -70 (“LLCA”) had no equivalent oppressed shareholder provision.  See, Denike v. Cupo, 394 N.J. Super. 357, 378, 926 A.2d 869 (App. Div. 2007), rev’d on other grounds, 196 N.J. 502, 958 A.2d 446 (2008). Fortunately for oppressed members of a New Jersey LLC, the LLCA has since been repealed. See L. 2012, c. 50, (eff. March 18, 2013) (enacting the Revised Uniform Limited Liability Company Act [the “RULLCA”], making the RULLCA applicable to all New Jersey LLCs formed after the legislation’s effective date, and replacing the LLCA with the RULLCA as to all existing LLCs as of March 1, 2014).

The recently-adopted RULLCA no longer permits a member to resign and be paid his fair value; instead, a member may withdraw, but the member’s status thereafter is as a "disassociated member." See N.J.S.A. 42:2C-45. The Legislature, however, chose to include an oppressed member provision in the RLLCA. N.J.S.A. 42:2C-48(a)(5)(b). That section permits a member to apply to the Superior Court for "an order dissolving the company on the grounds that the managers or those members in control of the company… have acted… in a manner that is oppressive and was, is, or will be directly harmful to the applicant." 

Last year the Appellate Division, in the unpublished decision Tutunikov v. Markov Processing, 2013 N.J. Super. UnPub. Lexis 1935 (August 1, 2013), overturned a Union County Chancery Judge’s finding that a member of a New Jersey Limited Liability Company was oppressed.  That decision applied the now repealed LLCA.  Had the oppression occurred after the enactment of the RULLCA, the Appellate Division would have affirmed the finding of oppression.  Hence, the Tutunikov decision is representative of the former law in the State of New Jersey. Today, thanks to the New Jersey Legislature’s enactment of the RULLCA, minority members are afforded the same protections given to minority shareholders in New Jersey corporations.

The Revised Uniform Limited Liability Company Act (the “New Jersey Revised Uniform LLC Act”), was enacted into law on September 19, 2012 and went into effect on March 18, 2013.  It applies to LLC’s formed on or after March 18, 2013 and LLC’s formed prior to March 18, 2013 which elected to be subject to the New Jersey Revised Uniform Act.  It will apply to all New Jersey LLC’s beginning on April 1, 2014.

One interesting change to the New Jersey LLC laws in the New Jersey Revised Uniform LLC Act is that an LLC can file a “statement of authority” with the “filing office” (the State Treasurer, or for authority relating to real estate transfers, with the office for recording transfers of the real estate — generally the County clerk’s office). 

How does this affect those doing business with New Jersey limited liability companies?

If a statement of authority has been filed, third parties are charged with knowledge of any limitation of authority provided in the statement of authority.  So, for example, if, prior to the New Jersey Revised Uniform LLC Act, a member or manager of a New Jersey LLC signed a contract on behalf of the LLC, and the other party was told that the member or manager had authority to sign, the other party to the contract could rely on the “apparent authority” of the member or manager to enforce the contract, even if the member or manager did not have actual authority to sign.  Now, if a the statement of authority is filed indicating that the member or manager’s authority is limited, the third party would be charged with that knowledge and can no longer rely on “apparent authority” to enforce the contract.

From a contracting party’s perspective, this means that prior to entering into an important contract, it is imperative to conduct a search to confirm that no statement of authority is of record.  From an LLC’s perspective, filing a statement of authority could protect the LLC from claims of “apparent authority” if there is a possibility that persons other than those with authority may enter into transactions.

Rachel Lilienthal Stark is a Shareholder in Stark & Stark’s Business & Corporate Group in the firm’s Lawrenceville, New Jersey Office. For questions, or additional information, please contact Ms. Stark.

The New Jersey Revised Uniform Limited Liability Company Act gives Courts discretion to remedy oppressive conduct.  If a court determines that a member or controlling member has, is or will act illegally, fraudulently, harmfully or oppressively towards a member, a Court may:  (1) appoint a custodian or provisional manager; (2) order the sale of a member’s LLC interest to the LLC or the members (N.J.S.A. 42:2C-48(b));  (3) dissolve the company; and (4) award legal fees and other expenses if a party acted vexatiously or otherwise not in good faith (N.J.S.A. 42:2C-48(c)).
 
The New Jersey Supreme Court in Brenner v. Berkowitz, 134 N.J. 488, 512 (1993) held that in addressing corporate minority oppression, Courts were not limited to the statutory remedies contained in the statute.  That means at least within the context of a shareholder dispute within a corporate entity, Courts may utilize its common law powers to fashion an equitable remedy.   At this point, it is unclear whether or not the same equitable powers will be given to Courts when confronted with remedying an oppressive conduct within an LLC.   Based upon my review of the Brenner decision, I believe Chancery Courts will have the same equitable powers to remedy oppression whether the entity is a corporation or an LLC.  That is because the Supreme Court in Brenner held “when a statutory violation occurs, a court retains its discretion to fashion equitable remedies.”  Brenner v. Berkowitz, 134 N.J. at 514.   

Scott Unger is a Shareholder in Stark & Stark’s Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.

Currently, the New Jersey Limited Liability Company Act allows LLCs to “carry on any lawful business, purpose or activity.”  N.J.S.A. 42:2B-8.   Sadly, the current law does not allow an LLC to be used for “non-profit” use such as a charity or placing a family vacation home into an LLC.  A small, but important change promulgated by the enactment of the New Jersey Revised Uniform Act is the change in that language. The Revised Act allows LLCs to be used for “any lawful purpose, regardless of whether for profit.”  Hence, non-profits may use an LLC after March 18, 2013.  Moreover, families could form an LLC and place their vacation home into that corporate structure even though the use of that home was not for profit. 
 
Scott Unger is a Shareholder in Stark & Stark’s Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.

New Jersey first promulgated Limited Liability Company (“LLC”) laws in 1993.  The New Jersey Company Act, N.J.S.A. 42:2B-1, et. seq., provided that LLCs were of a limited duration. In other words, they automatically ended after a defined period of time that was set forth by the operating agreement or by the statute (if there was no operating agreement).  The Revised Uniform Limited Liability Company Act changes the duration of an LLC. All LLCs formed after March 18, 2013 will have a perpetual duration.  As I’ve stated in previous blog posts, if the LLC was formed before March 18, 2013, the Members may opt in to be covered by the new law. If they do not opt in, then the LLC will have perpetual duration after March 1, 2014.  

Scott Unger is a Shareholder in Stark & Stark’s Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.
The New Jersey Revised Uniform Limited Liability  Company Act specifies that members and managers are subject to the contractual obligation of “good faith and fair dealing” when discharging their duties and exercising their rights.  That means that, even though not specifically stated in the operating agreement, it is implied or understood that each party to that contract must act in good faith and deal fairly with the other party in performing or enforcing the terms of the contract.  To act in good faith and deal fairly, a member or manager must act in a way that is honest and faithful to the agreed purposes of the operating agreement and consistent with the reasonable expectations of the parties.  A member or manager must not act in bad faith, dishonestly, or with improper motive to destroy or injure the right of the others to receive the benefits or reasonable expectations of the operating agreement.

Generally, to assert a breach of the covenant of good faith and fair dealing, the complaining party must prove that the manager or member acted with no legitimate purpose with bad motives or intentions; engaged in deceptive;  or evasion in the performance of terms and conditions set forth in the operating agreement. Moreover, they must prove that by engaging in such conduct they denied the complaining party of  the bargain initially intended by the parties. 

Because a Limited Liability Company is essence a contractual entity it has been widely recognized by many courts that the covenant of good faith and fair dealing already applied. Nevertheless, the Revised Uniform Limited Liability Act codifies the case driven application of the law.  The codification gives even greater protections for members of an LLC.   Of course, because a Limited Liability Company is a contractually based entity, the members may limit the covenant of good faith and fair dealing, so long as the limitation is not “manifestly unreasonable.”  As I wrote in a previous blog post, because this law is in its infancy, it is unknown how Courts will define and apply the “manifestly unreasonable” standard.   Of course, I will be diligently reading and analyzing those decisions over the course of the next few years.

 
Scott Unger is a Shareholder in Stark & Stark’s Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.

In previous blog articles, I wrote that it was unclear whether or not the minority oppression statute, N.J.S.A 14A:12-7(c), applied to oppressed members of a limited liability company (“LLC”). Some argued it did not apply because the legislature did not incorporate similar protections afforded to the oppressed in the current governing limited liability statute.  Others argued that a Court of equity could apply the minority oppression statute to an LLC pursuant to its equitable powers.   Moreover, the current LLC statute contained a “catch-all” that permitted Courts to apply general corporate law when equitable.  

Prior to the enactment of the Revised Uniform Limited Liability Company Act, it appeared that Courts were more inclined not to apply the protections afforded to minority shareholders to members of an LLC. One District Court quoted the article I wrote which was published in the New Jersey Law Journal as authority in finding that it did not apply.

The New Jersey Revised Uniform Limited Liability Company Act now answers that debate once and for all.  For all LLCs formed after March 18, 2013, the protections offered to oppressed members of a corporation are now immediately available to oppressed members of an LLC. After March 1, 2014, all oppressed members of an LLC are afforded those protections. 

In the next few years, I will be carefully, reading and analyzing the decisions. I am curious whether or not Courts will apply the well-established body of law applying the minority oppression statute to an LLC, as I believe they should and will apply.
 

Scott Unger is a Shareholder in Stark & Stark’s Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.

All New Jersey Limited Liability Companies formed after March 18, 2013, will be immediately governed by New Jersey’s Revised Uniform Liability Company Act.   Members of New Jersey Limited Liability Companies formed before March 18, 2013, may elect to be governed by the Revised Uniform Limited Liability Company Act.    They may wish to opt in early because the Revised Uniform Liability Company Act: (1) allows extrinsic evidence such as course of dealing amongst the members to govern the operations of the LLC; (2) allows the members to take advantage of the new “statement of authority” which sets forth who specifically is authorized to sign on behalf of the LLC; and (3) provides greater protections for oppressed minority members of the LLC. 

As of March 1, 2014, all New Jersey Limited Liability Companies will be subject to the Revised Uniform Liability Company Act.  Hence, if the members of a LLC formed before March 18, 2013, do not elect to opt into the revised law earlier than the new law will automatically apply to the governance of those LLCs after March 1, 2014.

Over the course of the next few blog posts, I am going to outline some of the significant changes of the Revised Uniform Liability Company Act.  As alluded to above, the revised law affords minority members greater protections from oppression.

Scott Unger is a Shareholder in Stark & Stark’s Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.

All New Jersey Limited Liability Companies formed after March 18, 2013, will be immediately governed by New Jersey’s Revised Uniform Liability Company Act.   Members of New Jersey Limited Liability Companies formed before March 18, 2013 may elect to be governed by the Revised Uniform Limited Liability Company Act.  They may wish to opt in early because the Revised Uniform Liability Company Act: (1) allows extrinsic evidence such as course of dealing amongst the members to govern the operations of the LLC; (2) allows the members to take advantage of the new “statement of authority” which sets forth who specifically is authorized to sign on behalf of the LLC; and (3) provides greater protections for oppressed minority members of the LLC. 

As of March 1, 2014, all New Jersey Limited Liability Companies will be subject to the Revised Uniform Liability Company Act.  Hence, if the members of a LLC formed before March 18, 2013 do not elect to opt into the revised law earlier, then the new law will automatically apply to the governance of those LLCs after March 1, 2014.

Over the course of the next few blog posts, I am going to outline some of the significant changes of the Revised Uniform Liability Company Act.  As alluded to above, the revised law affords minority members greater protections from oppression.

Scott Unger is a Shareholder in Stark & Stark’s Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.

I have co-authored an important client alert about a law deadline that could impact all limited liability companies in the state of New Jersey. The article discusses the New Jersey Revised Uniform Limited Liability Company Act (RULLCA), which significantly changes many of the legal principles underlying the organization, governance and operation of limited liability companies.  While, until now, existing LLC’s were not impacted by this new law, the grace period expires on March 1, 2014 and the new act will apply to all existing New Jersey limited liability companies.

To read the entire alert, please click here. If you have any questions or concerns, please contact Stark & Stark’s Business and Corporate group.