Ask a Business Lawyer, Part 5: New LLC Act, What You Need to Know
Posted by Michelle Grenier on Tue, Oct 04, 2011 @ 09:52 AM
Maine’s New LLC Act: A Double-edged Sword
What Businesses Should Know About Maine’s New LLC Act.
I. Maine’s new LLC Act, generally. Maine's new LLC Act, effective July 1, 2011, is a doubled-edged sword, providing advantages for some businesses and disadvantages for other businesses.
A. For example, businesses entering certain joint venture deals, will benefit from the new LLC Act.
B. However, the same provisions that benefit joint venture businesses, create disadvantages for small “Mom & Pop” businesses.
(1) Small “Mom & Pop” businesses want a simple means to protect their personal assets through the creation of an LLC.
(2) The New LLC Act does not provide this simplicity.
(3) The ability to make the LLC “deal specific” benefits joint venture businesses, however, creates an obligation on small businesses to draft a very specific and detailed Limited Liability Company Agreement (the LLC Agreement).
II. The new LLC Act adds more time and cost to establishing an LLC.
A. The filing of the Certificate of Formation is no longer sufficient to establish an LLC
B. The LLC Agreement, formerly known as the “Operating Agreement,” is now absolutely necessary and required for the LLC to exist.
(1) There is no LLC and no personal asset protection for business owners, absent an appropriate LLC Agreement.
(2) The LLC Agreement now plays a central role in the operations of the LLC.
(3) The LLC Agreement governs the relationships amongst Members.
(4) The LLC Agreement governs the relationships among the Members and the LLC.
C. Serious attention is required in drafting the LLC Agreement.
(1) Although the new LLC Act does not specifically state that the LLC Agreement must be in “writing,” the Statute of Frauds will require the LLC Agreement to be in writing, in most small business situations.
(2) Any type of do-it-yourself LLC Agreement template, is wholly inadequate and cannot possibly address the issues that need to be addressed or the level of specificity that is now required by new LLC Act.
(3) Unless a comprehensive well-drafted LLC Agreement addresses the issues in the LLC Act, the provisions of the LLC Act will apply.
(a) Business owners will need to address in their LLC Agreement, each of the issues presented in the LLC Act and determine whether they want the statutory provision to apply or if they want to modify or waive the provisions.
(b) In addition, business owners need to know that certain provisions of the LLC Act may not be waived or modified by an LLC Agreement.
(c) Some examples of issues that should be addressed are duties, responsibilities, authorizations, liabilities, operations, relationship between Members and relationship between Members and the LLC.
III. Possible time and cost reductions. The new LLC Act provides for an e-filing option.
A. This e-filing option will only be effective if the Secretary of State approves such.
B. Currently, the Secretary of State does not provide a platform for e-filing of Certificates of Formation for LLC’s.
C. Amongst other things, e-filing will reduce the time required to make such filings and thus, the cost of such filings, in addition to the convenience, expedience and efficiency that e-filing provides.
IV. What this means for your Maine Business.
A. Most small businesses seek a vehicle that provides a simple means for protecting their personal assets through the creation of a separate legal entity.
1) In the past, small businesses found that vehicle in prior Maine LLC Act.
2) The new LLC Act, presents additional requirements for small businesses, that increase the complexity and cost of establishing LLC’s.
B. Most small businesses want to focus on their business and not be ruled by an arduous and lengthy contractual agreement, that governs an extensive spectrum of issues. However, this is the case with LLC’s for most small businesses, under the new LLC Act.
C. Without proper professional guidance from a competent business lawyer, and a well-drafted LLC Agreement, the operations of small businesses may be governed by statute.
D. Without a Certificate of Formation and an LLC Agreement small businesses will have neither an existing LLC nor the corresponding personal asset protection.
E. In light of the requirements of the new LLC Act, the advantages of an S-Corp may outweigh the advantages of a Maine LLC for some small businesses.
V. Affect of the Uniform LLC Act for businesses in other states.
A. Many states are looking to revise their LLC Acts, in light of the Uniform LLC Act.
B. Business owners should check-in with a business lawyer to determine whether or not changes to any LLC Act affect their business.
When you are ready to discuss the legal issues associated with your business, click here to contact Michelle L. Grenier, Esq.
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