LLC changes rife with complexities
To the editor:
I am writing to clarify what I consider misleading statements in "Impacts felt from new LLC law changes" in the Oct. 17 issue of Mainebiz. The article provides that: "Before the new law took effect, an LLC could come to life simply by filing a certificate of formation with the Secretary of State's Office, and optionally drafting an operating agreement. Now, to be recognized by the state, filers must draft an LLC agreement that governs just about every aspect of doing business, including liabilities, operations, fiduciary duties and the relationships among members. Without the agreement, there's no LLC, and therefore no personal asset protection, a primary reason for seeking LLC status."
I disagree with this analysis.
There are three requirements that must be satisfied under the new law in order for an LLC to come into existence. First, a certificate of formation in respect of the LLC must have been properly filed with the office of the Maine Secretary of State. Second, the LLC must have an LLC agreement. And third, the LLC must have at least one member.
To understand fully the requirement that an LLC have an LLC agreement in order to come into existence, one must review the new law's definitions of "limited liability company agreement" and "limited liability company." The new law defines a "limited liability company agreement" as "any agreement….written, oral or implied, of the member or members as to the affairs of a limited liability company and the conduct of its activities." The definition of "limited liability company" in the new law provides that "the fact that the limited liability company has a certificate of formation filed with the Office of the Secretary of State and has one or more members is conclusive evidence that a limited liability company agreement exists."
After carefully reviewing the new law, the following conclusions come into focus:
As a result of the new law, it is advisable that the owners of a prospective Maine LLC enter into a formal written LLC agreement before filing the certificate of formation for the LLC. The LLC agreement should include a strong merger clause providing that the LLC agreement supersedes all prior agreements of the parties and that the LLC agreement cannot be amended except in writing. While this requirement can be relaxed for single owner LLCs, it is still good practice for even these businesses to have a simple LLC agreement on file to demonstrate that they are observing statutory formalities and treating their LLCs as separate and distinct entities.
Christopher Dargie, attorney
Perkins — Thompson, Portland
CORRECTION
In the Oct. 31 story on the Maine Farmland Trust, "Protecting farms," we misspelled the names of McDougal Orchards and co-owner Jack McAdam. We regret the errors.
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