In the midst of this tumultuous political season, North Carolina has passed a new Limited Liability Company (LLC) statute. The stated purpose of the new Act is, “to provide a flexible framework under which one or more persons may organize and manage one or more businesses as they determine to be appropriate with minimum prescribed formalities or constraints.” This Act will go into effect on January 1, 2014.
One interesting change in the new Act is that is allows a person to hold a purely economic interest in a company without being a member. Prior to this change, a person could not have only an economic interest in a LLC without being a member and having the other responsibilities that goes along with membership such as voting.
Another change in the new Act is the provisions relating to low-profit LLCs were deleted. These types of companies, sometimes called “L3C” businesses, attempt to combine profit-making principles with a charitable purpose. This has been a fairly controversial type of LLC since it combines principles from both non-profit and for-profit institutions. If you have an ownership interest in a low-profit LLC you should consult an attorney. You may need to execute a conversion to a different type of entity in order to be in compliance with North Carolina law.
Other changes have to do with the effect of oral agreements and how conflicting terms between the operating agreement and the article of incorporation will be dealt with.
The new Act will apply to all existing LLCs regardless of whether they were formed before or after January 1, 2014. The new Act should have a minimal effect on a LLC that is regulated by a well-written operating agreement. All other LLCs should have their operating agreements reviewed by an attorney to make sure they are in compliance with the new Act. In addition, all limited liability companies should review their filings to make sure they are up to date with the Secretary of State.
Clement Law Firm, Asheville, NC