By: Clay K. Keller and Rebecca G. M. Krehbiel
The Ohio Revised Limited Liability Company Act (“Revised Act”), signed into law on January 8, 2021, became effective Friday, February 11, 2022. The Revised Act applies to all LLCs registered to do business in Ohio, whether formed before, on, or after the effective date. Completely restating the existing Ohio Limited Liability Act (“Prior Act”), the Revised Act modernizes Ohio’s LLC law with a number of changes, some of which are highlighted below.
Statutory Agent Required. Under the Revised Act, LLCs are required to maintain a statutory agent in Ohio. Failure to maintain a statutory agent could result in cancellation of the LLC’s registration by the Secretary of State.
Series LLCs Permitted. Series LLCs are now permitted under the Revised Act. Series LLCs establish in their operating agreements one or more designated series of assets or liabilities for certain subsets of members. Each series within the LLC, in its own name, can enter into contracts, sue or be sued, hold title to property, etc. This type of structure provides an alternative to a parent/subsidiary or holding company structure, while still providing liability protection to each series. Assets held in one series are protected from the liability of assets in another. While not without risks, as Series LLCs are still relatively new, Series LLCs provide a flexible, new way to protect assets within an LLC from liability.
Elimination of Member-Manager Dichotomy. The Revised Act attempts to provide more flexibility for different types of management structures by eliminating the manager-managed/member-managed dichotomy under the Prior Act. Instead of the statutory default authority to the Manager or Member to bind the LLC, the Revised Act allows a person’s ability to act on behalf of the LLC to be authorized in the operating agreement, a decision of the members, by filing a Statement of Authority with the Secretary of State (Form 613), or the Revised Act’s default rules.
Statutory Default Fiduciary Duties for Managers and Members. The statutory default fiduciary duties for Managers (in manager-managed) and Member (in member-managed) are the duty of loyalty and care as well as good faith and fair dealing. Operating agreements can expand or limit these duties, but the duty of good faith and fair dealing cannot be waived.
Clarification of Default Rules. While the Prior Act had various provisions scattered throughout that stipulated what was not permitted to be modified by an LLC’s operating agreement, the Revised Act clarifies in one provision what cannot be modified by an operating agreement. Additionally, the Revised Act clarifies that, with the exception of the provisions that cannot be modified, the provisions of the Revised Act are considered default provisions if not otherwise modified by the operating agreement. This change clears up some ambiguity in the Prior Act regarding what was and was not allowed to be modified by an LLC’s operating agreement.
Dissolution. The Revised Act contains a new statutory framework for cutting off claims after dissolution, including a statutory deadline to bring a claim and a timeframe to commence a proceeding if the claim is rejected. If not filed by the statutory deadline, the claim would be barred.
New Secretary of State Forms. Importantly for practitioners and those desiring to form LLCs under the Revised Act, the Ohio Secretary of State has revised its forms to be consistent with the provisions of the Revised Act. The new forms are available on the Secretary of State’s website and must be used beginning February 11, 2022.
If you are concerned about how the Revised Act affects your existing business or your plans to start a new business, please contact our Akron, Ohio office at 330-252-9060.