Key Takeaways

  • New Jersey does not legally require an LLC to adopt a written operating agreement, but without one, the Revised Uniform Limited Liability Company Act (RULLCA) governs by default.
  • A written agreement provides clarity on management, voting rights, distributions, and fiduciary duties, reducing disputes and litigation risk.
  • Members may create oral or implied agreements, but these are harder to prove and enforce compared to written agreements.
  • An operating agreement can define ownership percentages, capital contributions, buyout procedures, and succession planning that state default rules may not adequately cover.
  • Courts may intervene if members are oppressed or if the LLC operates unfairly, making a clear agreement critical for legal protection.
  • Even single-member LLCs benefit from an agreement, especially for banking, taxes, and demonstrating separation between personal and business affairs.

Limited liability companies (LLCs) formed and registered in the state of New Jersey are not required to write or file an operating agreement. If a business chooses not to form an operating agreement, they automatically adopt the LLC operating rules of the state.

NJ Regulations for LLC Operating Agreements

An operating agreement for an LLC is a document written by the founding members of the company that outlines basically how they plan to operate their business. This document is not required for LLCs in most states, but it is a very good idea for an LLC to form one. A well-formulated operating agreement can settle disputes between members and help keep everyone on the same page even as big changes or challenges come up.

Since 2014, the Revised LLC Act has been governing LLCs registered in NJ as an updated version of the original LLC Act. Some of the changes that took place in this revision include:

  • Operating agreement amendment or change method.
  • Management and distributions.
  • Member resignation practices.
  • Fiduciary duties.
  • Indemnification.
  • Oppressed members.

Why an Operating Agreement Matters in NJ

Even though New Jersey does not mandate filing or drafting an operating agreement, having one is strongly recommended. Without it, your LLC automatically defaults to the state’s rules, which may not reflect your business’s needs. An operating agreement helps:

  • Outline ownership shares and voting power.
  • Clarify profit and loss allocations beyond equal division.
  • Establish management structures, such as member-managed or manager-managed.
  • Prevent misunderstandings among members by documenting agreements in writing.
    This document acts as a blueprint for your LLC’s internal operations and can demonstrate professionalism to investors, lenders, and partners.

Operating Agreement Amendment or Change Method

The Revised LLC Act of NJ provides rules for businesses that don't form their own operating agreements. Basically, NJ has a state-provided operating agreement for LLCs. The only way to override the state rules is to create your own written operating agreement, although, in some cases, an oral or implied agreement may also act as an override. An implied operating agreement is established by an LLC's actions throughout its existence.

LLCs without a written operating agreement will likely face more complicated litigation in disputes between members. When all the members have formed and signed an agreement, they can all go back to the agreement to settle their arguments. Without that, issues can easily blow up into big problems. In order to amend the operating agreement for an LLC, all of the members will need to consent and sign the amendment.

Oral and Implied Agreements in NJ

New Jersey recognizes that operating agreements can be written, oral, or implied. An oral or implied agreement may arise from the members’ consistent business practices. However, relying solely on oral or implied arrangements can create uncertainty in disputes because they are harder to prove in court. A written operating agreement remains the most reliable way to override state defaults and ensure enforceability.

Management and Distributions

The Revised LLC Act says that all members have equal rights regardless of their capital contributions. If an LLC wants to give different management and profit distribution rights to various members, they'll need to say so in their operating agreement. Also, disputes in the LLC are settled by majority votes unless otherwise stated in the operating agreement.

Profit distributions should be divided out evenly among the members if the NJ LLC rules apply. Any time an LLC wants to deviate from the standard regulations for LLCs in their state, they need to make the difference clear in their operating agreement. Without these deviations documented and agreed upon by the members, one member can file a lawsuit against the business over their profit distribution amount and the LLC will be held to the state rules.

Ownership and Voting Rights

State law assumes each member has equal ownership and voting power, regardless of capital contribution. But an operating agreement allows members to:

  • Set ownership percentages based on investment or role.
  • Allocate specific voting rights tied to contributions or responsibilities.
  • Decide whether certain decisions require a supermajority or unanimous consent.
    Customizing these terms prevents conflicts and ensures decision-making reflects members’ intent rather than rigid state defaults.

Member Resignation Practices

When a member of an LLC resigns, the Revised LLC Act states that the member will give up their voting rights but keep their shares in distributions. They are then called disassociated members. The resigning member doesn't receive a profit distribution when they resign, but whenever the next distribution takes place for all of the members. An operating agreement might choose to change these terms and has the right to do so.

Buyout and Succession Planning

Without an operating agreement, resignation or member exit may leave ownership and profit rights unclear. A well-drafted agreement can:

  • Outline buyout provisions if a member wants to leave.
  • Establish valuation methods for selling membership interests.
  • Set rules for transferring ownership to heirs in the event of death or incapacity.
    These provisions protect both the departing member and those who remain.

Fiduciary Duties

Fiduciary duties are assumed with all members of a New Jersey LLC. As long as the agreement remains within reason, an operating agreement can change the basic fiduciary duties of the LLC's members. Without a clear change, NJ rules for member fiduciary duties apply, requiring them to act in good faith and in the best interest of the LLC.

Protecting Members Through Duties and Limitations

By default, New Jersey imposes fiduciary duties such as loyalty, care, and acting in good faith. Members can adjust these duties in the operating agreement, provided they do not eliminate the duty of good faith entirely. For example, an agreement may:

  • Define the scope of fiduciary duties to fit the LLC’s business.
  • Allow certain transactions between the LLC and members if disclosed.
  • Reduce liability exposure for honest mistakes in judgment.
    This flexibility helps tailor member responsibilities to the unique risks and operations of the LLC.

Indemnification

Member indemnification was not originally required by the LLC Act, but the Revised LLC Act made it mandatory if there is no operating agreement in place and the NJ rules apply. If an operating agreement is in place, then members do not have an indemnification requirement.

Oppressed Members

If the LLC is acting in a way that oppresses the rights of a certain member or members, the LLC may face a court order for its dissolution. In some cases, the LLC may have a court-appointed custodian assigned to manage the business's affairs.

Single-Member LLCs in New Jersey

Even if you are the only member of an LLC, banks, lenders, and investors often require a copy of your operating agreement before opening accounts or providing financing. For single-member LLCs, the agreement can:

  • Demonstrate the LLC is legally distinct from its owner, supporting liability protection.
  • Clarify how profits, taxes, and recordkeeping will be handled.
  • Help in estate planning by identifying what happens if the sole owner dies.
    Thus, while single-member LLCs are not legally required to draft an agreement, doing so strengthens credibility and protects personal assets.

Frequently Asked Questions

  1. Does NJ require an operating agreement for LLCs?
    No. New Jersey does not require an LLC to adopt an operating agreement, but without one, the LLC defaults to state law rules.
  2. Can an NJ LLC rely on an oral or implied operating agreement?
    Yes, but oral or implied agreements are harder to enforce and prove. A written agreement is more reliable for avoiding disputes.
  3. What happens if my LLC has no operating agreement in NJ?
    The LLC will be governed by New Jersey’s default laws, which may not reflect the members’ intentions regarding management, distributions, or exit strategies.
  4. Do single-member LLCs in NJ need an operating agreement?
    Not legally, but banks and lenders often require one. It also helps prove separation of business and personal assets.
  5. Can fiduciary duties be changed in an NJ LLC operating agreement?
    Yes, members can adjust fiduciary duties in the agreement, though they cannot completely eliminate the duty of good faith and fair dealing.

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