Key Takeaways

  • The Uniform Limited Liability Company Act (ULLCA) standardizes LLC laws across states, balancing flexibility with consistent governance.
  • Revisions to the ULLCA introduced manager-managed structures, continuity upon member death, and clearer fiduciary duties.
  • States adopting the ULLCA often repeal older LLC statutes to align with modern governance principles and uniformity.
  • The ULLCA defines the fiduciary duty of loyalty and care, which can be modified but not eliminated by an operating agreement.
  • Adoption of the ULLCA simplifies dissolution rules, clarifies member rights, and strengthens protections for third parties dealing with LLCs.

The Uniform Limited Liability Company Act (ULLCA) of 1996 allows the creation of limited liability companies (LLCs), which grant the owners of the LLC with partnership tax treatment and the benefits of both corporate-style limited liability. The recent amendments, enacted as part of the Harmonization of Business Entity Acts project, updated and unified the language in this act with related provisions in other model and uniform unincorporated entity acts.

Revised Limited Liability Company Act

When there aren't any clear protocols to follow, important decision making and legal battles can be difficult surrounding limited liability companies. The revised version of the ULLCA has helped provide the necessary regulation by providing guidance in which to formulate and dissolve these groups of companies.

LLCs are often incorrectly labeled as limited liability corporations. An LLC is not a partnership nor a corporation. Rather, it has aspects of both. Similar to a corporation, members of an LLC have liability protection but are considered members and not partners or shareholders. Owners can benefit from the pass-through taxation advantage, with added resilience in how profits are distributed to members.

Although forming an LLC is easier than creating a corporation, there are still some complexities involved. It is important to check the rules regarding starting an LLC, as laws and regulations vary from state to state. Remember, the laws in the state in which you reside may be different from the state that you're considering forming the LLC.

Due to the varying state laws and the potential issues that may arise, in 1995 the National Conference of Commissioners on Uniform State Laws proposed the ULLCA. The ULLCA describes the increased benefits of adding consistency in administering LLCs. In 2006, an amendment was made because many considered the original Uniform LLC Act to be tediously long and too complicated.

Called the Revised LLC Act, this new documentation resulted in easier language for the general public to comprehend. It also made a few changes with regards to the functioning of LLCs.

Although the revision of the LLC formulation act allowed for easier readability, there was one significant expansion on the topic. The revised act now included the ability to create a manager-managed LLC in addition to the previous option of having a member-managed LLC or a board-managed LLC. This allowed companies to decide if a partner could serve as a manager when investors declined involvement in the management process.

Prior to the revision, if there was a death of a member, an LLC would need to be dissolved. Now, as long as the company did not prohibit it, a representative of the deceased member, or “successor of interest,” could take that person's place.

Revisions to the ULLCA doesn't automatically make previous versions obsolete. When the act was revised in 2006, it permitted LLCs already working under the act two options:

  1. Continue working off the original version
  2. Decide to govern and work under the revised act

When the act was amended back in 2006, it granted LLCs the option to either continue working off the original version or take up the revised act to regulate their operation.

Fiduciary Duties Under the ULLCA

The ULLCA codifies fiduciary duties—particularly the duty of loyalty and the duty of care—which are central to member and manager conduct.

  • Duty of Loyalty: This duty prohibits members and managers from self-dealing, misappropriating LLC opportunities, or competing with the company without consent.
  • Duty of Care: Members and managers must act with the care that a reasonably prudent person would exercise under similar circumstances, avoiding gross negligence or intentional misconduct.

Importantly, the ULLCA allows operating agreements to modify these duties but not eliminate them entirely. For example, an agreement may outline circumstances under which a conflict of interest is permissible, but it cannot waive the duty of loyalty altogether.

Additionally, the statute emphasizes good faith and fair dealing as a baseline expectation in all LLC activities. Even where fiduciary duties are modified, parties must exercise contractual rights honestly and fairly.

Evolution and Purpose of the ULLCA

The Uniform Limited Liability Company Act (ULLCA) was designed to bring clarity, consistency, and predictability to LLC governance across U.S. jurisdictions. Before its introduction, LLC laws varied significantly from state to state, creating uncertainty for businesses operating in multiple states. By establishing uniform default rules, the ULLCA harmonizes core elements of LLC law, including formation procedures, internal governance, fiduciary obligations, and dissolution processes.

A key objective of the ULLCA is flexibility. It allows members to customize their operating agreements to fit their business needs while providing statutory “default” provisions when no such agreement exists. This approach balances contractual freedom with necessary legal safeguards, ensuring that LLC members, managers, and third parties understand their rights and obligations.

Another foundational principle is continuity and simplicity. Revisions to the ULLCA made LLCs more resilient to changes in membership—such as death or withdrawal—and provided straightforward mechanisms for transferring ownership interests and admitting new members. It also clarified the LLC’s legal standing as a separate entity from its members, reinforcing limited liability protections.

Adoption of the Pennsylvania Uniform Limited Liability Company Act

By supporting the ULLCA, the state of Pennsylvania became one of the first to embrace the latest rendition of the ULLCA. The systematic acts were developed by professionals and scholars as exemplary acts for all states to embrace and utilize, with the goal to strengthen the quality and consistency of the law among the states.

The aftermath of the act is fundamentally two-fold. It both creates new rules relevant to the members of LLCs and simplifies existing rules of law. Regarding LLCs, the act recommends:

  • Definitive rules on governance and formation
  • Funds owed by managers and members to each other and individuals interacting with the LLC
  • Liability and authority members
  • The treatment of interests in the LLC
  • Dissolution

Another significant modification includes a simplification regarding the funds owed among the members of the LLC in the relation to a member-managed LLC. The change made members owe one another a:

  • Fiduciary duty
  • Duty of care
  • Duty of fair dealing and good faith

Dissolution, Withdrawal, and Member Rights

The ULLCA also refines rules around dissolution, withdrawal, and member rights—areas that previously caused confusion and disputes under older laws. Key updates include:

  • Continuity Despite Member Changes: An LLC no longer automatically dissolves when a member dies or withdraws, provided the operating agreement permits continuity.
  • Simplified Dissolution Procedures: Clearer statutory grounds for judicial and administrative dissolution reduce uncertainty and litigation.
  • Transfer and Withdrawal Rights: Members can transfer their economic interests without granting the transferee governance rights, preserving control among existing members.
  • Statutory Buyout Provisions: In some cases, members may have the right to demand a fair-value buyout of their interest during dissociation.

These provisions strengthen LLC stability and reduce disruption when membership changes occur, supporting long-term business planning and succession strategies.

State Adoption and Legal Impact

Since its introduction, many states have repealed older LLC statutes and replaced them with the ULLCA or its revised version (RULLCA). These adoptions often represent significant shifts in state business law. For example, Arkansas repealed its previous LLC statutes entirely in favor of the ULLCA, aiming to modernize its legal framework and align with national standards.

This move has several practical implications:

  • Uniformity: Businesses operating across state lines benefit from predictable legal principles.
  • Modernization: Updated definitions, flexible governance options, and clearer member rights better reflect contemporary business practices.
  • Enhanced Protection: Provisions address liability shields, fiduciary responsibilities, and third-party reliance on LLC authority, reducing litigation risks.

By embracing the ULLCA, states also encourage business formation and investment by simplifying compliance requirements and increasing legal certainty for entrepreneurs and investors alike.

Frequently Asked Questions

  1. What is the main purpose of the ULLCA?
    The ULLCA standardizes LLC laws across states, offering consistent default rules on formation, governance, fiduciary duties, and dissolution while allowing customization through operating agreements.
  2. Can fiduciary duties be waived under the ULLCA?
    No. While an operating agreement can modify certain aspects of fiduciary duties, it cannot eliminate the duty of loyalty, duty of care, or the obligation of good faith and fair dealing.
  3. Does the ULLCA apply automatically to existing LLCs?
    Not always. Many states allow existing LLCs to continue under prior statutes or opt into the revised act. However, new LLCs are typically governed by the ULLCA by default.
  4. What happens to an LLC if a member dies?
    Under the ULLCA, an LLC can continue to operate if the operating agreement permits it, and a successor or representative may assume the deceased member’s interest.
  5. Why have states adopted the ULLCA?
    States adopt the ULLCA to modernize their business laws, create legal consistency, reduce disputes, and provide businesses with greater flexibility and legal clarity.

If you need help with the Uniform Limited Liability Company Act, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.