THE NEW ALABAMA LIMITED LIABILITY COMPANY LAW

The Alabama law governing limited liability companies changed effective January 1, 2015.  It is important to understand the changes the new act known as the Alabama Limited Liability Company Law of 2014 makes to the prior LLC law.

 

SUMMARY OF SIGNIFICANT CHANGES

 

  1. The new Act recognizes the contractual nature of the limited liability company.  Many of the Act’s provision can be changed by agreement of the members to fit their particular needs.  If the members do not change these provisions there are many default provisions that become applicable.  (The upshot of the mandatory default provisions in the new law require careful preparation of the limited liability company agreement to make certain that members are not inadvertently binding themselves to default provisions they do not wish to follow in their LLC.)

 

  1. Under the old law many LLC’s were formed without the preparation of what under the old Act was called an Operating Agreement and under the new Act is called the Limited Liability Company Agreement.  The filings required to form, dissolve, merge or convert a limited liability company are now designed to simply provide notice to the State and third parties that the limited liability company exists.  (What this means is that the details about the limited liability company will now need to be contained in the limited liability company agreement.  If you visit the Secretary of State website you will see that the form for creation of an LLC is now very limited underscoring the need for the preparation of a limited liability company agreement.)

 

  1. The Limited Liability Company Agreement for the LLC will identify the person or persons who will direct and oversee the activities and affairs of the limited liability company will be governed by the limited liability company agreement.

 

  1. Authority to act.  It should be noted that there is no statutory authority to bind the LLC.  A person’s authority to bind the limited liability company will be governed by the Limited Liability Company Agreement and the law of agency.

 

Once again, the limited liability company agreement becomes important in that banking institutions and others dealing with the limited liability company will now likely all require a clear statement of authority in the limited liability company agreement.

 

  1. Series.  A unique feature of the new Act is that it provides for the creation of what is known as series, LLC’s.  The Act permits the limited liability company to establish, either through a Certificate of Formation or through its Limited Liability Company Agreement one or more designated series of assets with which certain members may be included.  The Act provides that the assets of one series will not be liable for the obligations of the limited liability company or another series.  (This of course requires attention in both the Certificate of Formation and in the Limited Liability Company Agreement.  It should be noted in the past many people formed a different LLC for each aspect of business which they wanted to engage in.  However, it is likely if the series LLC is utilized that an improperly formed series or one which does not comply with the law will face the challenges of an alter ego or piercing the veil claim if suit is brought against it.)

 

We will be happy to assist you with a review of your current LLC document or the formation of a new LLC.

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