Changes To The Ohio Llc Act

Ohio Revised LLC Act

1. The Act is written to allow more freedom of contract in the enforceability of operating agreements.[1]
   1. The Act allows members, managers, and officers to eliminate all fiduciary duties of members, managers, and officers EXCEPT:
      1. The implied covenant of good faith and fair dealing[2]

2. The Act eliminates the manager-managed and member-managed distinction.
   1. To determine a person’s authority to bind the LLC one must:
      1. Look to the operating agreement;
      2. Decisions of the members consistent with the operating agreement; OR
      3. ORLLCA’s default rules[3] (See #8).

3. Secretary of State must cancel an LLC that fails to maintain a statutory agent; but the LLC will be reinstated upon appointment.
   1. Upon failure of a limited liability company to continuously maintain a statutory agent or file a change of name or address of a statutory agent, the Ohio Secretary of State will notify the entity of this failure.
   2. If the agent information is not updated within 30 days, then the Ohio Secretary of State will cancel the limited liability company’s registration.
   3. The entity may file a reinstatement and appointment of agent (Form 525A) to return to an active status.[4]

5. The LLC Act now imposes a fine if a foreign limited liability company fails to properly register with the Secretary of State.
   • The Act grants the Ohio Attorney General the authority to bring action against a foreign limited liability company for failure to register.
   • The action may result in an injunction against the entity, court costs, and interest due.[5]
6. LLC’s can now establish one or more series of assets: Series must be associated with at least one member and have separate rights, powers, duties, liabilities purposes, and objectives.[6]
7. Ability to Bar Known Claims Against Dissolved Series:
   1. To gain this protection, the LLC must:
      1. Identify the LLC and the dissolved series;
      2. Describe the information required to be included in a claim;
      3. Provide a mailing address to which the claim is to be sent;
      4. State the deadline by which the dissolved[7] series must receive the claim, which must be at least 120 days after the notice’s effective date;
      5. State that if not sooner barred, the claim will be barred if not received by the deadline.[8]

• Unless sooner barred by any other statute limiting actions, a claim against a dissolved a series is barred if:
  • A claimant who was given the above notice does not deliver the claim to the dissolved series by the deadline; or
  • A claimant whose claim was rejected by the dissolved series does not commence proceeding to enforce the claim within 90 days after the effective date of the rejected notice.
• The dissolved series must:
  • Publish a notice on the Series LLC’s website (if maintained) and provide a copy of the notice to the Ohio Secretary of State for publishing on its website for the purpose of notifying unknown or potential creditors that any claim not brought by them against the Series LLC within two years of the publication date will be barred.[9]

7. Filing form Changes
   1. Articles of Organization = Form 610
   2. Statutory Agent Update = Form 521
   3. Reinstatement & Appointment of Agent = Form 525A
   4. Certificate of Amendment or Restatement = Form 611
   5. Certificate of Correction = Form 612
   6. Statement of Authority = Form 613
   7. Amendment or Cancellation of a Statement of Authority = Form 614
   8. Statement of Denial = Form 615
   9. Certificate of Dissolution = Form 616

8. Default Rules Differ from Most Member’s Objectives
   1. The Act states that the following default rules will apply if not addressed in the operating agreement:
      1. Decisions related to the ordinary course of the LLC’s business are decided by a majority of the members (per person) rather than in proportion to each member’s contribution of capital or ownership stake.[10] If you have two owners and one owns 90% and the other owns 10%, without addressing voting in the Operating Agreement each person’s vote is of equal weight.
      2. Consent of all members is required to:
         1. amend the operating agreement;
         2. file for bankruptcy, or state insolvency law for the LLC;
         3. undertake any act outside of the ordinary course of the LLC’s business; OR
         4. approve any other act that requires unanimous consent.[11]
         5. The default rules under Act require that all members share equally in any cash or other distributions made by the company.[12]
         6. The default provisions for approval of mergers of an Ohio limited liability company require the consent of all members.[13]

9. The New Act permits a company to add, in the operating agreement, penalties and consequences if a member breaches the operating agreement or upon occurrence of a certain event.
   1. These penalties or consequences may include any of the following:
      1. Reducing or eliminating the defaulting a member’s interest in an LLC;
      2. Subordinating the membership interest to nondefaulting members or assignees;

• Forcing a sale of the membership interest;

1. Forfeiting the membership interest;
2. The lending by other members or assignees to meet the defaulting member’s or assignee’s commitment;
3. A fixing of the value of the defaulting member’s membership interest by appraisal or formula (and redemption or sale of the membership interest at that value);

• Any other penalty or consequence.[14]

10. Protections Against Creditors of Members:
    • The New Act allows an LLC to protect itself from any claims by creditors of a member. These include claims which include a security interest in a member’s interest in the LLC.
      • To cut off claims after the entity dissolves, the LLC must:
        • Publish a notice of dissolution that includes:
          • Identify the dissolved LLC;
          • Describe the information required to be included in a claim;
          • Provide a mailing address to which the claim is to be sent
          • State the deadline by which the LLC must receive the claim, which must be at least 90 days after the notice’s effective date.
          • State that if not sooner barred, the claim will be barred if not received by the deadline.
        • Creditors forfeit their right to collect if they do not submit claims within 90 days.[15]