On January 1, 2013, various changes go into effect for limited liability companies formed in Nebraska. Depending upon when you formed your limited liability company, this new law may significantly impact the legal relationships and risks of your company. While the new law includes numerous changes, the following is a list of certain key changes that you should be aware of:
1. Fiduciary Duties. The new law creates duties of loyalty and care owed by members and/or managers to each other and to the company. This could result in unintended personal liability for members or managers.
2. Voting. The new law allows all members to have an equal say in the management of the company, regardless of the member’s investment.
3. Distributions. The law provides that all distributions prior to dissolution must be made in equal shares among members, regardless of the investment of each member. In addition, solvency tests have been added that must be met prior to distributions being made to members.
4. Transfer of Interests. The new law may allow a member, or even require a member, to transfer the financial rights of his or her ownership interest in the company even if such transfer is contrary to the company’s operating agreement. Such a transfer could result in a “split membership interest” whereby the transferring member would retain the right to vote and the transferee member would have the financial interests related to the interest.
5. Charging Orders. The new law provides that creditors of a member may obtain a”charging order” that allows the creditor to obtain the member’s financial rights to distributions from the LLC. The member retains his or her right to vote, but loses all financial rights.
6. Statement of Authority. The new law allows a company to file a Statement of Authority with the Nebraska Secretary of State that specifies the authority given to officers and managers of the company and which puts the world on notice of any limitations of authority. This could be an important tool for passive investors to ensure that third parties recognize the limitations placed upon the management of the company.
Many of the provisions of the new law can be modified in your company’s operating agreement. We recommend that you have your company’s operating agreement reviewed, as well as your current policies and procedures regarding governing the company, to ensure that your business will still accomplish your intentions under the new law.
A Tax Note: In addition, effective for 2013, an additional 3.8% Medicare tax on investment income and other unearned income may apply to income from your LLC. If income from your LLC would otherwise be subject to the new tax, there are various changes to your LLC’s tax elections and management structure that can be made before year-end to prevent the new tax from applying to income you receive from your LLC.
