Say Hello to Ohio's New LLC Act. Part 1: Overview of Significant Changes

This article is the first installment of a three-part series by Brandon Leal and Julie Vaccarelli that provides a brief overview of some of the significant changes in the New LLC Act.  The second installment will further analyze "series" LLCs.  The third installment will analyze other key provisions of the New LLC Act.

By Brandon J. Leal, Esq. and Julie A. Vaccarelli, Esq.

Earlier this year, Ohio passed the Ohio Revised Limited Liability Company Act (S.B. 276) (the “New LLC Act”), which completely replaces Ohio’s current limited liability company (“LLC”) statutes.  The New LLC Act repeals the existing statutes in full (Revised Code Chapter 1705, et seq.) and provides sweeping changes that modernize the governance of Ohio LLCs (codified in Revised Code Chapter 1706, et seq.).

The New LLC Act will be effective on January 1, 2022.  In advance of that date, existing LLCs should become familiar with the New LLC Act and ensure that they are prepared to take advantage of the changes.

Because of the slew of changes in the New LLC Act, we will provide further detail and analysis in two future articles.  As a preview, some of the principal changes include:

• Penalties for Failing to Comply with the Operating Agreement (R.C. § 1706.08(B)) – An operating agreement may impose penalties (g., reducing a member’s interest) if a member fails to perform or comply with the operating agreement (e.g., failure to exercise a call option).
• Expansion/Reduction of Fiduciary Duties (R.C. § 1706.08(B)) – Other than the implied duty of good faith and fair dealing, an operating agreement may expand or reduce the fiduciary duties owed between members.
• Clarity on “Default” Rules (R.C. § 1706.08(C)) – Unlike the former statutes, this section makes clear that, other than the items listed in § 1706.08(C), all governing statutes in Chapter 1706 are default rules that the LLC’s operating agreement can modify.
• Penalty for Failure to Maintain Statutory Agent (R.C. § 1706.09(L)) – If an LLC fails to update its statutory agent, the Ohio Secretary of State is directed to cancel the LLC’s articles after 30-days' notice and failure to correct.
• Series LLCs (R.C. §§ 1706.76 to 7613) – An LLC operating agreement can now permit the creation of “series" LLCs, which creates a series of distinct LLCs under a single operating agreement – similar to using parent/subsidiary LLCs to separate assets (provided that the LLC's Articles of Organization contains certain language).
• Elimination of Member/Manager Management Distinction (R.C. §§ 1706.18 to 19) – LLCs are no longer required to be either member or manager-managed; instead, LLCs are now governed by members, who can implement an appropriate governance structure (g., board of directors, officers, oversight committee, member/manager-managed, etc.).

The above is only a brief overview of some of the significant changes in the New LLC Act.  In the next article, we will provide further analysis on the ability to form series LLCs and the pros and cons of doing so.  In the last article, we will provide further analysis on other key provisions.  In the meantime, contact a WHP attorney today to ensure that your operating agreement is updated and ready for when the New LLC Act becomes effective.

This article provides an overview and summary of the matters described therein. It is not intended to be and should not be construed as legal advice on the particular subject.