Addressing Utah’s New LLC Act and Avoiding Unpleasant Consequences
Parties often form and use limited liability companies to conduct business, protect assets, own property, undertake joint ventures, and pursue other commercial transactions. The appeal of an LLC as an entity of choice includes the separate existence of the entity, the limited liability of its members, the favorable pass-through tax treatment, and the flexibility in structuring management rights and duties. The recently effective new Utah LLC Act has a number of default provisions that are unusual and that affect these concepts. This act becomes effective on January 1, 2016 for all Utah LLCs, even previously grandfathered entities formed prior to January 1, 2014.
To avoid unpleasant consequences, parties need to review their current LLC operating agreements (or if there is no operating agreement, put one into place) and make sure the agreement addresses any oral agreement, the voting rights of members, the voting rights of managers, and the fiduciary duties of managers under the act. Otherwise, the default positions in the Utah statute may control, creating some unwanted results. An operating agreement should also address tax and financial allocations and distributions to ensure they meet the various parties’ needs and requirements.
This presentation discussed the importance of a complete operating agreement to address governance matters and certain tax aspects to permit members and managers to meet their business goals.
