Does NJ Require Operating Agreement for LLC?
Limited liability companies (LLCs) formed and registered in the state of New Jersey are not required to write or file an operating agreement.3 min read
Limited liability companies (LLCs) formed and registered in the state of New Jersey are not required to write or file an operating agreement. If a business chooses not to form an operating agreement, they automatically adopt the LLC operating rules of the state.
NJ Regulations for LLC Operating Agreements
An operating agreement for an LLC is a document written by the founding members of the company that outlines basically how they plan to operate their business. This document is not required for LLCs in most states, but it is a very good idea for an LLC to form one. A well-formulated operating agreement can settle disputes between members and help keep everyone on the same page even as big changes or challenges come up.
Since 2014, the Revised LLC Act has been governing LLCs registered in NJ as an updated version of the original LLC Act. Some of the changes that took place in this revision include:
- Operating agreement amendment or change method.
- Management and distributions.
- Member resignation practices.
- Fiduciary duties.
- Indemnification.
- Oppressed members.
Operating Agreement Amendment or Change Method
The Revised LLC Act of NJ provides rules for businesses that don't form their own operating agreements. Basically, NJ has a state-provided operating agreement for LLCs. The only way to override the state rules is to create your own written operating agreement, although, in some cases, an oral or implied agreement may also act as an override. An implied operating agreement is established by an LLC's actions throughout its existence.
LLCs without a written operating agreement will likely face more complicated litigation in disputes between members. When all the members have formed and signed an agreement, they can all go back to the agreement to settle their arguments. Without that, issues can easily blow up into big problems. In order to amend the operating agreement for an LLC, all of the members will need to consent and sign the amendment.
Management and Distributions
The Revised LLC Act says that all members have equal rights regardless of their capital contributions. If an LLC wants to give different management and profit distribution rights to various members, they'll need to say so in their operating agreement. Also, disputes in the LLC are settled by majority votes unless otherwise stated in the operating agreement.
Profit distributions should be divided out evenly among the members if the NJ LLC rules apply. Any time an LLC wants to deviate from the standard regulations for LLCs in their state, they need to make the difference clear in their operating agreement. Without these deviations documented and agreed upon by the members, one member can file a lawsuit against the business over their profit distribution amount and the LLC will be held to the state rules.
Member Resignation Practices
When a member of an LLC resigns, the Revised LLC Act states that the member will give up their voting rights but keep their shares in distributions. They are then called disassociated members. The resigning member doesn't receive a profit distribution when they resign, but whenever the next distribution takes place for all of the members. An operating agreement might choose to change these terms and has the right to do so.
Fiduciary Duties
Fiduciary duties are assumed with all members of a New Jersey LLC. As long as the agreement remains within reason, an operating agreement can change the basic fiduciary duties of the LLC's members. Without a clear change, NJ rules for member fiduciary duties apply, requiring them to act in good faith and in the best interest of the LLC.
Indemnification
Member indemnification was not originally required by the LLC Act, but the Revised LLC Act made it mandatory if there is no operating agreement in place and the NJ rules apply. If an operating agreement is in place, then members do not have an indemnification requirement.
Oppressed Members
If the LLC is acting in a way that oppresses the rights of a certain member or members, the LLC may face a court order for its dissolution. In some cases, the LLC may have a court-appointed custodian assigned to manage the business's affairs.
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