On January 8, 2021 Ohio Governor Mike DeWine signed into law the Ohio Revised Limited Liability Company Act (the “New Act”). The New Act completely replaces the existing Ohio Limited Liability Company Act (Chapter 1705 of the Ohio Revised Code) with new Chapter 1706 of the Ohio Revised Code. The New Act significantly updates Ohio’s LLC law, providing increased opportunities and flexibility. This could make Ohio a potential favorable home for an LLC.
Effective Date is April 12, 2021. Applicable date is January 1, 2022.
• Default Nature: The New Act emphasizes that its contents are generally “default” provisions — applicable only to an LLC that has not adopted an operating agreement with contradicting terms. This gives business owners and investors greater flexibility to design an LLC.
• Flexible in Governance Structure: The New Act allows an LLC to be managed by a member or a manager. This allows an LLC to set up a governance body more akin to that of a for-profit corporation or partnership, such as a board of directors or an oversight committee.
• Ability to Eliminate Fiduciary Duties: The New Act permits an LLC to limit or eliminate entirely all fiduciary duties of members, managers, and officers. The only non-waivable fiduciary duty is the implied covenant of good faith and fair dealing. This has many implications in structuring and liabilities.
• Penalties for Failure to Perform: The New Act permits an LLC to set forth specified penalties and consequences in its operating agreement that will apply if a member breaches the operating agreement or upon the occurrence of a certain event. Business owners should take note of this drafting flexibility as it allows them to contractually penalize certain actions and maintain control.
• Ability of Operating Agreement to Confer Rights to Person Without Economic Interest.
• Series of Limited Liability Companies: This is a drastic change. The New Act allows an LLC to establish “series” in which the assets of each series are protected from claims against and liabilities incurred by another series or the LLC as a whole. This aspect is very useful in the context of investment funds.
• Protections Against Creditors of Members: The New Act also allows an LLC to protect itself from any claims by creditors of a member, including situations where a creditor claims a security interest in a member’s interest in the LLC.
Please contact Lei Jiang law firm to ensure the best protection accorded by the law as a result of these changes.
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