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Changes to Utah’s Limited Liability Company Act

In 2014, the Utah Uniform Revised Limited Liability Company Act (URLLCA) (48-3a-101) took effect. The URLLCA applies to all LLC registered in Utah on January 1, 2014, and after.

 

Formation

The first change to mention is LLC filers will no longer file “articles of organization.” Instead LLC filers file a “certificate of organization.” The content required in a certificate of organization has changed.

 

Operating Agreements

If a written operating agreement is not unanimously adopted by all members, then the Act governs. Significantly, oral agreements between the members may not form an LLC’s operating agreement. The content of operating agreements for Utah LLCs now has certain requirements, or rather, certain prohibitions . Operating agreements may not eliminate  a member’s duty of loyalty, care, good faith and fair dealing. An operating agreement may also not exonerate a member from liability for conduct involving bad faith, willful misconduct or recklessness.

 

Enforceable Contributions 

Contribution obligations are now enforceable. The exception is if an obligation to contribute is waived by the remaining members. An exception to the exception is if a creditor lends money to the LLC relying on a contribution obligation. In this event, a relying creditor may enforce the contribution.

 

Member Duties

Members of a member-managed LLC now owe a duty of loyalty and care to the LLC and the other members. Specifically, this means members are considered trustees of an LLC’s property, assets and opportunities. Members are prohibited from appropriating opportunities from the LLC, self-dealing or competing with the LLC.

 

Default Management Designation 

The default management designation is member-managed unless the operating agreement states otherwise. The implication of a member-managed designation is significant as the URLLCA provides that in member-managed LLCs each member has an equal right to manage and conduct the affairs of the limited liability company. The operating agreement may only be changed by consent of all of the members. A host of other actions now require the consent of all members.

 

Derivative Lawsuits

With respect to member lawsuits against an LLC, the URLLCA codifies the Rule 23A of the Utah Rules of Procedure and derivative demands as a prerequisite to filing.

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