The new Connecticut Uniform Limited Liability Company Act (the “New CT LLC Act”) will be taking effect July 1, 2017. The New CT LLC Act is based on the Uniform Limited Liability Company Act adopted by the Uniform Laws Commission and replaces the Connecticut Limited Liability Company Act (the “Old Act”). The New CT LLC Act represents an attempt to modernize Connecticut’s laws with respect to limited liability companies (“LLCs”) while trying to promote uniformity with other states.
As an initial matter, the New CT LLC Act does not affect any right, remedy, privilege, obligation or liability existing on or before July 1, 2017. Accordingly, with respect to operating agreements executed prior to the New CT LLC Act’s effective date, any actions taken will not violate the New CT LLC Act if such actions were otherwise permissible under the Old Act. The New CT LLC Act makes a variety of changes to the laws governing limited liability companies. Below discusses the most notable changes.
Default Rules and Prohibitions
Generally, the New CT LLC Act creates or modifies a series of default rules in the event that an operating agreement is silent on a particular issue. There are only 14 items that operating agreements are specifically prohibited from containing under the New CT LLC Act. The most notable of these prohibitions relate to the duty of care that members and/or managers owe to the LLC.
The New CT LLC Act provides an operating agreement cannot eliminate the implied contractual duty of good faith and fair dealing. However, the operating agreement may prescribe the standards used to measure performance of the duty of good faith and fair dealing, so long as such standards are not manifestly unreasonable. An operating agreement may also modify or eliminate a member’s or manager’s duty of loyalty so long as doing so is not manifestly unreasonable. However, regardless of the operating agreement, a person will always be liable for conduct involving bad faith, willful or intentional misconduct, or knowing violation of law.
The New CT LLC Act incorporates other concepts traditionally applicable to corporations under the Connecticut Business Corporation Act, including allowing a member to bring a derivative action to enforce a right of an LLC under certain circumstances.
Under the Old Act every member is considered an agent of a member-managed LLC (unless a member has no actual authority). The New CT LLC Act eliminates the statutory apparent authority of a member. Instead, the New CT LLC Act provides a default rule whereby a member is not an agent of an LLC solely because that person is a member.
The New CT LLC Act also changes the default provisions governing the threshold of membership votes required for an LLC to take certain actions. Now, instead of the previously required majority consent to admit new members to an LLC, the New CT LLC Act requires unanimous member consent for such action. Similarly, unanimous member approval will now be required for amendments to the certificate of organization or operating agreement. Moreover, the vote of two-thirds members interest is required to approve any act outside the LLC’s purpose, business or affairs if such act is prohibited by the operating agreement.
The Old Act required that an LLC’s articles of organization state whether the LLC is member- or manager-managed. Under the New CT LLC Act, if an LLC will be manager-managed, that fact must now be stated in the LLC’s operating agreement. An LLC’s articles of organization are also no longer required to state the nature of the LLC’s business or purposes under the New CT LLC Act.
Technical Changes
The New CT LLC Act makes minor technical changes to certain provisions of the Old Act. For example:
- The term for an LLC’s formation document will be changed from “articles of organization” to “certificate of organization” under the New CT LLC Act.
- Any LLC formed on or after July 1, 2017 for the purposes of rendering professional services, must include in its name “professional limited liability company,” “P.L.L.C.,” or “PLLC.”
- The term for the person designated to receive legal process in Connecticut for an LLC is changed from “statutory agent for service” to “registered agent.”
Summary
The above discussion only provides some notable highlights of the changes brought about by the New CT LLC Act. Though many of the changes to Connecticut LLC law made by the New CT LLC Act relate to default provisions where an LLC’s operating agreement is silent. Clients should consult with an attorney if there is any question about how the New CT LLC Act will affect their operating agreement or whether any changes thereto are necessary. Depending on the circumstances, it may be advisable for a client to amend its operating agreement in light of how the changes made by the New CT LLC Act relate to a particular client’s business.
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