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.

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

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