1. Mark J. Oberstaedt, Esquire
Robert T. Egan, Esquire
Lloyd Freeman, Esquire
Archer & Greiner, P.C.

2.  The Revised Uniform Limited Liability
Company Act, N.J.S.A. 42:2C-1, et. seq.
 Adopted in nine jurisdictions: California, District of
Columbia, Florida, Idaho, Iowa, Nebraska, New
Jersey, Utah and Wyoming
 March 1, 2014: RULLCA governs all New
Jersey limited liability companies. N.J.S.A.
42:2C-91.
 Actions instituted before March 1, 2014 still
governed by prior Act. N.J.S.A. 42:2C-90.

3.  Operating Agreements are no longer required to
be in writing.
 May be oral, written or implied based on the way
the LLC has operated.
 May provide that any amendment would require
the satisfaction of a condition or the approval of a
person not a party to the Operating Agreement.
NJSA 42:2C-12(a)

4.  Eliminates the default rule that LLCs have a
limited life.
 LLCs have a perpetual duration unless
otherwise stated in the Operating Agreement.
 Allows for alternative management structures,
such as a board of directors and officers,
similar to corporation management structures.

5.  Allocations of profit and loss will be made on a
per capita basis. N.J.S.A 42:2C-34(a)
 Operating Agreement can provide otherwise.
 Prohibits an LLC from making distributions to
members if:
 The LLC cannot pay its debts as they become due or
 The assets would be less than its liabilities after
giving effect to the distribution.
 Liabilities include amounts needed to satisfy any
preferential rights of members payable upon the
dissolution of the LLC.
 N.J.S.A 42:2C-35

6.  Significantly alters default rule voting,
management, and decision-making.
 Members will make decisions on a per capita
(one-member one-vote) basis in the ordinary
course of business.
 Matters outside the ordinary course of business
(extraordinary matters, e.g. mergers) must be
decided unanimously

7.  In manager-managed LLC, managers generally
have authority to decide matters in the
ordinary course of business, but certain
extraordinary matters (such as mergers and the
sale of all or substantially all assets) will
require the consent of the members.
 In member-managed LLC, members have
authority to decide all matters.
 Can be modified in Operating Agreement.

8.  If member-managed, the following rules apply:
 The management and conduct of the company are vested
in the members.
 Each member has equal rights in the management and
conduct of the company's activities.
 A difference arising among members as to a matter in the
ordinary course of the activities of the company may be
decided by a majority of the members.
 An act outside the ordinary course of the activities of the
company may be undertaken only with the consent of all
members.
 The operating agreement may be amended only with the
consent of all members.
N.J.S.A. 42:2C-37(b)

9.  If manager-managed, the following rules apply:
 matters relating to company activities decided exclusively by
the managers.
 Each manager has equal rights in management
 A difference arising among managers as to a matter in the
ordinary course decided by a majority of the managers.
 The consent of all members is required to:
 sell, lease, exchange, or otherwise dispose of all, or
substantially all, of the company's property outside the
ordinary course of the company's activities;
 approve a merger, conversion, or domestication
 undertake any other act outside the ordinary course of the
company's activities; and
 amend the Operating Agreement.
N.J.S.A, 42:2C-37(c)

10.  Allows conversion of New Jersey LLC to a
different form of New Jersey Business
Organization, such as Corporation or Limited
Partnership, and will also allow a non-LLC
form of Business Organization to convert to a
New Jersey LLC.
 Allows domestication, LLC may choose to
operate under the laws of a different state or a
foreign LLC may choose to operate under the
laws of New Jersey.
N.J.S.A. 42:2C-81 to 86

11.  In the member-managed LLC, being a member by
itself does not make the member an agent of the
LLC or otherwise establish legal authority to bind
the LLC. N.J.S.A. 42:2C-27(a)
 Authority determined under common law agency
principles (unless otherwise provided in the
Operating Agreement). N.J.S.A. 42:2C-27(b)
 Permits an LLC to file a public statement of
authority stating the authority, or limitations on
the authority, of specific persons involved in the
LLC, to execute documents or otherwise act on
behalf of or bind the LLC. N.J.S.A. 42:2C-28.

12.  The RULLCA imposes newly defined duties on
members and managers of LLCs
 Duty of loyalty
 Duty of care
 Duty of good faith and fair dealing

13.  If member-managed, the new duties and
obligations are imposed on the members.
 If manager-managed, the duty of loyalty and
duty of care are imposed on only the managers
 The obligations of good faith and fair dealing
in the discharge of their duties continues for
members and managers in an LLC.

14.  If it is not “manifestly unreasonable,” the
Operating Agreement may eliminate or limit a
member or manager’s liability to the LLC and
members for money damages, except for
 breach of the duty of loyalty;
 a financial benefit received by the member or
manager to which the member or manager is not
entitled;
 an improper distribution;
 intentional infliction of harm on the LLC or a
member; or
 an intentional violation of criminal law.
N.J.S.A. 42:2C-11d(1)-(5)

15.  Duty of loyalty for member in a member-managed
LLC:
 to account to the company and to hold as trustee for it any
property, profit, or benefit derived by the member:
 in the conduct or winding up of the company's activities;
 from a use by the member of the company's property; or
 from the appropriation of a company opportunity.
 to refrain from dealing with the company in the conduct or
winding up of the company's activities as or on behalf of a
person having an interest adverse to the company; and
 to refrain from competing with the company in the conduct of
the company's activities before the dissolution of the company.
N.J.S.A. 42:2C-39(b)

16.  The duty of care requires a managing person to
refrain from engaging in grossly negligent or
reckless conduct, intentional misconduct or a
knowing violation of law.
 Operating Agreement cannot eliminate the duty of
care (regardless of whether the elimination could
be found not to be “manifestly unreasonable”).
 Operating Agreement may alter the duty of care (if
not “manifestly unreasonable”), except to
authorize intentional misconduct or knowing
violation of law.
N.J.S.A 42:2c-39

17.  Members and managers required to exercise their
rights and perform their duties under both
RULLCA and Operating Agreement under a
standard of good faith and fair dealing.
 Obligation of good faith and fair dealing cannot be
eliminated in the Operating Agreement.
 Operating Agreement may proscribe standards by
which to measure whether a member or manager
has complied with the obligation.
N.J.S.A. 42:2C-39(d)

18.  Operating Agreement can include a
mechanism for disinterested and independent
persons, after full disclosure of all material
facts, to authorize or ratify an act that violates
the duty of loyalty.
 Even if the Operating Agreement does not
restrict or eliminate the duty of loyalty, the
members may unanimously authorize or ratify
a member’s act that violates the duty if all
material facts are disclosed. N.J.S.A. 42:2C-
39(f)

19.  A member may maintain a direct action against
another member, a manager, or the limited liability
company to enforce the member's rights and
otherwise protect the member's interests
 Operating Agreement
 RULLCA
 Claims arising independently of the membership
relationship.
 Actual or threatened injury must be distinct from
any injury suffered or threatened to be suffered by
the limited liability company.
N.J.S.A. 42:2C-67

20.  Minority members may seek court order
dissolving LLC, or appoint a custodian or a
provisional manager and exercise other
remedies on grounds that the managers or
controlling members:
 Have acted, are acting, or will act in an illegal or
fraudulent manner, or
 Have acted or are acting in an oppressive manner that
was, is or will be directly harmful to a member.
N.J.S.A. 42:2C-48a(5)(b).

21.  Similar to those of oppressed minority
shareholders of corporations.
 The rights and remedies available to oppressed
members of an LLC may not be eliminated or
altered in the LLC’s Operating Agreement.

22.  In a member-managed LLC:
 Member has a right to inspect and copy any records regarding
the LLC to the extent material to member’s rights and duties
under the Operating Agreement or under RULLCA
 LLC is obligated to furnish each member without demand any
information regarding the company which the company knows
is material to the exercise of the member’s rights and duties
under the Operating Agreement or RULLCA
 Unless the company can establish its reasonable belief that the
member already knows the information
 The company must also furnish to each member, on demand,
any other information concerning the LLC, except to the extent
the demand or information demanded is unreasonable or
otherwise improper under the circumstances.
 N.J.S.A. 42:2c-40

23.  In a manager-managed LLC:
 Manager is entitled the same information described above
for members, in lieu of the members having those rights.
 Member may inspect and copy information regarding the
LLC as is just and reasonable if:
 The purpose is material to the member’s interest as a
member of the LLC
 Member makes written demand describing with reasonable
particularity the information sought, and
 Purpose for seeking the information and the information
sought is directly connected to the member’s purpose.
N.J.SA. 42:2C-40

24.  Member Dissociation. Under the RULLCA, Members
who withdraw or resign from an LLC will no longer be
entitled to receive the fair value of their LLC interest as
of the date of resignation.
 Resigning member is dissociated as a member and only
has the rights of an economic interest holder, with no
management or voting rights.
 A Dissociated Member will be entitled to receive
distributions, if any, made by the LLC.
 Withdrawal does not discharge the person from any
debt, obligation or other liability to the company or the
other members that was incurred while the dissociated
member was a member of the LLC.
N.J.S.A. 42:2C-47.

25.  A member who resigns or withdraws from an LLC
is not entitled to fair value for that member’s
equity interest or any other distribution upon
withdrawal from the LLC.
 The withdrawing member simply becomes a
disassociated member who continues to be entitled
to distributions and a liquidating distribution on
dissolution, without a right to vote or participate
in the management of the LLC.
 Operating Agreement can include provisions
which address buyouts on resignations or
withdrawals so as to avoid this issue.
N.J.S.A. 42:2C-47.

26. Involuntary Dissociation
 If a member is involuntarily expelled because
he has exchanged in conduct making it not
reasonably practicable to continue with him as
a member under N.J.S.A. 42:2C-46e(3), a Court
may order the sale of the interests held by that
person before dissociation either to the
company or the persons who are parties to the
action if (in court’s discretion), it is:
 Required by law, rule or regulation, or
 Would be fair and equitable to all

27.  Court can order involuntary dissolution on application
by a member:
 the conduct of all or substantially all of the company's activities
is unlawful; or
 it is not reasonably practicable to carry on the company's
activities in conformity with one or both of the certificate of
formation and the operating agreement;
 the managers or those members in control of the company:
 have acted, are acting, or will act in a manner that is illegal or
fraudulent; or
 have acted or are acting in a manner that is oppressive and was,
is, or will be directly harmful to the applicant.
N.J.S.A. 42:2C-4, 5

28.  Party may seek a remedy other than dissolution
 Appointment of a custodian or provisional managers
 Can be by summary proceeding
 Court shall appoint a custodian or one or more
provisional managers if it appears to the court that such
an appointment may be in the best interests of the LLC
and its members.
 Order the sale of all interests held by a member who is a
party to the proceeding to either the LLC or any other
member who is a party to the proceeding
 Discretionary
 fair and equitable to all parties under the circumstances
N.J.S.A. 42:2C-48(b)

29.  If the court determines that any party to a
proceeding has acted vexatiously, or otherwise
not in good faith, it may in its discretion award
reasonable expenses, including counsel fees
incurred in connection with the action, to the
injured party or parties.
N.J.S.A. 42:2C-48(c)

30.  A member may maintain a derivative action to
enforce a right of a limited liability company if:
 The member first makes a demand on the other
members in a member-managed limited liability
company, or the managers of a manager-managed
limited liability company, requesting that they cause
the company to bring an action to enforce the right,
and the managers or other members do not bring the
action within a reasonable time; or
 A demand would be futile. N.J.S.A. 42:2C-68.
 Must be a member when case starts and remain
so throughout. N.J.S.A. 42:2C-69.

31.  If an LLC is named in a derivative action or
made a party to a derivative action, the LLC is
permitted to form a special litigation
committee to investigate the asserted claims
and determine whether pursuing the action is
in the best interests of the LLC.
N.J.S.A. 42:2C-71.

32.  May stay discovery for the time reasonably
necessary to permit the special litigation
committee to make its investigation.
 Stay does not prevent the court from enforcing
a person's right to information or granting
injunction.

33.  After appropriate investigation, a special litigation
committee may determine that it is in the best
interests of the limited liability company that the
proceeding:
 continue under the control of the plaintiff;
 continue under the control of the committee;
 be settled on terms approved by the committee; or
 be dismissed.
N.J.S.A. 42:2C-71.

34.  If committee recommends dismissal, it must shall file with
the court a statement of its determination and its report
supporting its determination
 Court must determine:
 whether committee members were disinterested and independent
 whether the committee conducted its investigation and made its
recommendation in good faith, independently, and with
reasonable care
 The committee has the burden of proof.
 If yes, the court shall enforce the determination of the
committee.
 Otherwise, the court shall dissolve the stay of discovery
entered and allow the action to proceed under the direction
of the plaintiff.
N.J.S.A. 42:2C-71.

35.  N.J.S.A. 42:2C-57. The law of the state or other
jurisdiction under which a foreign limited liability
company is formed governs:
 the internal affairs of the company; and
 the liability of a member as member and a manager as
manager for the debts, obligations, or other liabilities of
the company.
 Las Vegas Sands Corp. v. Ace Gaming, LLC, 713
F.Supp. 2d 427 (D.N.J. 2010).
 Also looked at governmental interest analysis test
 Most significant connection with the parties and the
transaction
 Neither state of formation nor principal place of business is
definitive

36.  All Saints University of Medicine Aruba v. Chilana,
Docket No. A-2628-09T1, App. Div. Dec. 24, 2012 and
2015 N.J. Super Unpub. LEXIS 2454 (App. Div. Oct. 27
2015)
 LLC formed in New Jersey to operate a medical school in
Aruba.
 The project ran into trouble; disputes broke out between the
four members of the LLC.
 Desperately short of cash
 One member willing to put money into the business, but only if
other members were dissociated.
 Plaintiff files suit. Defendants allege plaintiff breached his
fiduciary duty by not contributing
 Trial court found that it was no longer reasonably practicable to
carry on and that minority would be entitled to be paid fair
value
 Stipulated that business had no value

37.  Appellate Division examined N.J.S.A. 42:2B-24,
which provides LLC member can be involuntarily
dissociated by judicial order for the following
reasons:
 Engaged in wrongful conduct that adversely and
materially affected the business;
 Willfully or persistently committed a material breach of
the Operating Agreement; or
 Engaged in conduct relating to the business which makes
it not reasonably practicable to carry on the business with
the member.
 Statute is disjunctive and any one of the three
reasons is sufficient to expel a member.

38.  Expulsion does not automatically entitle that
member to be paid fair value for his or her interest.
 Expelled member becomes an “assignee” of the
membership interest entitled to receive the
financial benefits, such as distributions of cash,
profits or losses that might be passed through to an
individual tax returns.
 Assignees have no right to participate in the
management of the business
 Remanded so that expelled member could tender
his shares for zero value and trial court could
decide whether his withdrawal would be justified

39.  On remand, Plaintiff moved to retain his
economic membership, but not his
management
 LLC argued that Plaintiff should be removed in
his entirety
 Trial court sided with Plaintiff because it did
not believe it could re-assess the remedy

40.  On second appeal, the Appellate Division
explained that statute did not compel a
purchase
 Appellate Division held that non-statutory
remedies could be imposed
 Remanded again to determine whether the
breach of fiduciary duty and duty of loyalty
warranted a forced buyout? If so
 What date for valuation?
 What value?

41.  IE TEST, LLC v. Carroll, 2015 N.J. Sup. Ct.
Unpub. LEXIS 567 (March 17, 2015)
 Defendant was a member of an LLC that
experienced financial problems.
 Members decided to close the LLC.
 At closure, the LLC owed Defendant minority
member approximately $2.5 million.
 Members decided to open a new LLC.

42.  The new LLC was owned equally by three
members, including Defendant.
 The three members attempted to negotiate an
Operating Agreement.
 Defendant sought to include a provision in the
Operating Agreement that would require the new
LLC) to repay the debt owed to the Defendant
minority member from the prior LLC.
 Other members refused and the parties were unable
to reach an agreement on Operating Agreement.

43.  Plaintiff sought to expel the minority member
from the LLC and alleged:
 Failure to enter into an Operating Agreement
prevented the LLC from securing a bank line of
credit
 Required the LLC to obtain financing through less
favorable means.
 Left unresolved other issues, including “issues of
corporate governance, succession, buyouts and
compensation.”

44.  Trial court entered partial summary judgment in
favor of the Plaintiff
 Although the LLC failed to establish any wrongful
conduct by the minority member, “it was not reasonably
practicable to continue the business with [the Defendant]
as a member,”
 Trial court noted that the three LLC members “can’t talk
to each other,” “[t]hey can’t agree on anything,” and that
“[t]here will be those times when they have to concur and
they have to agree and we know that’s not going to
happen when people really hate each other, where they
dig in their heels, and it’s perverse.”
 Entered an order expelling the minority member.

45.  On appeal, court explained expulsion under
N.J.S.A. 42:2B-24(b)(3)(c) does not require proof
of a past misconduct
 Court can expel a member by looking forward
and determining that it is “not reasonably
practicable to carry on the business’ if the
member remains.”

46.  The Appellate Division found persuasive a seven-
factor test:
 Whether management is unable or unwilling reasonably to
permit or promote the purposes for which the company was
formed;
 Whether a member or manager engaged in misconduct;
 Whether members have clearly reached an inability to work
with one another to pursue the company’s goals;
 Whether there is deadlock between members;
 Whether Operating Agreement provides a means of navigating
around any deadlock;
 Whether, due to the company’s financial position, there is still a
business to operate; and
 Whether continuing company is financially feasible.
Gagne v. Gagne, 338 P.3d 1152, 1159 (Colo. Ct. App. 2014)

47.  Trial court properly entered partial summary
judgment expelling minority member because:
 Discord arose immediately after formation
 Relationship never recovered from initial disputes
 Minority member unwilling to alter his negotiating
position
 Not practical for the individuals to continue in
business together.

48.  N.J.S.A. 42:2C-48(b) states that a court can
dissolve an LLC when “it is not reasonably
practicable to carry on the company’s activities
in conformity with the Certificate of
Organization and the Operating Agreement”
 No definitive line of cases seems to have arisen.
 RULLCA does not explain

49.  First line of cases relies on the Operating
Agreement
 In re Silver Leaf LLC, 2005 Del. Ch. LEXIS 119
 Members deadlocked, LLC lost its sole client.
 Sole purpose of servicing that client no longer existed
 Not practicable to continue the business.
 Dunbar Group LLC v. Tignor, 593 S.E. 2d 216 (Va. 2004)
 Examine circumstances in light of LLC’s purpose
 Deference to the Operating Arrangement.
 Reversed lower court dissolution order because inadequate
evidence to show it could not function without the dispelled
member.


50.  Second line of cases addresses economic approach.
 Kirksey v. Grohmann, 754 N.W. 2d. 825 (S.D.
2008).
 Dissolution allowed where inability to resolve the
members’ differences frustrated the LLC’s economic
purpose
 Schindler v. Niche Media Holdings, LLC, 772
N.Y.S. 2d. 781 (N.Y. Sup. Ct. 2003).
 Profitable and functioning LLC could not be resolved
under “not reasonably practicable” provision
 Judicial dissolution ordered only when the business is
unable to function or failing financially.

51.  Third line of cases is the deadlock approach.
 DeBaron Assocs. v. Van Slooten, 2012 N.J.
Super. Unpub. LEXIS 1520 (N.J. App. Div.
2012).
 Dissolution appropriate when, regardless of
independent management and financial success,
partner discord rendered it impracticable to carry on
the business.
 Discord must be more than “mere trifling causes or
temporary grievances.”
 Granted dissolution due to extreme disagreement
among the family member partners.

52.  Foster Owners Co., LLC v. Farrell, 2015 U.S.
Dist. LEXIS 21588 (D.N.J. Feb. 23, 2015)
 Farrell was 45% owner and managing member
 Argued that case should be dismissed because LLC
was not named as a party
 Rule 19 indispensible party analysis
 LLC was not indispensible because all members who
had interests at stake were named parties

53.  In re Crest by the Sea, LLC, 522 B.R. 540 (D.N.J.
Br. 2014)
 Five members in a manager-managed LLC
 Operating Agreement was silent on authority
 Non-manager files for bankruptcy
 Filing for bankruptcy protection is outside the course
of company’s normal activities

54.  RULLCA default rule requires unanimous
consent
 Member who filed became dissociated upon filing
 3 of the other 4 consented at time of filing
 4th member consented in responding to the motion
 Held to be an authorized filing