Limited Liability Companies (LLCs) have become very popular business entities over the last couple of decades. They provide for a number of practical advantages and protections for the business owner.
For an LLC, it is vitally important that there is a comprehensive and updated operating agreement in effect. While it has never been legally required for an LLC to have a written operating agreement, it has always been highly advisable.
In our experience in business law, the majority of disputes involving LLCs boil down to issues of ownership, control, and operation. An alarming number of LLCs in North Carolina either have an indifferent, outdated operating agreement or no operating agreement at all.
Not having a solid, written operating agreement is a recipe for business disagreements and lawsuits. Having a well drafted operating agreement allows for the members and economic interest owners to spell out with precision the rights, obligations and financial stake of all involved.
In addition, in January of 2014, the North Carolina General Assembly repealed the North Carolina Limited Liability Company Act and replaced it with an entirely new act (often referred to as the “New Act”).
The New Act contains a number of significant changes to the old law. Some of these include a clarification of the different ownership interests in an LLC. Now, in addition to members, there are economic interest owners.
Also, the old member-managed or manager managed structure has been replaced. The New Act provides that LLCs can now be managed similar to corporations, i.e. setting up a board of directors and electing officers such as President, CEO, Vice-President, etc.
Another significant change from the New Act is that now the Articles of Organization on file with the Secretary of State is considered a part of the operating agreement. Often, there are inconsistencies between these two documents.
The new law states that any inconsistency shall be controlled by the terms of the operating agreement only as among the parties to the operating agreement and company officials. The terms of the Articles of Organization will control over the operating agreement as to third parties to the extent they reasonably relied on it.
There are a number of other changes put into effect by the New Act that can have a serious impact on your LLC.