Iowa LLC Law Changes in 2009
There are significant changes to the Iowa limited liability company (LLC) statute effective Jan. 1, 2009. The changes include everything from how an LLC is initially formed and filed with the Secretary of State to changes that apply when a member leaves (i.e. disassociates) from the LLC.
The changes in the law are too numerous to set out in one blog post. In fact, Marc Ward of the Dickinson Law Firm has devoted an ENTIRE blog to the 2009 Iowa LLC law changes.
So instead of boring you with all the details, here are my top five Iowa LLC law changes for 2009:
- Certificate of Organization: Starting with the new year, you will no longer file "Articles of Organization" with the Secretary of State to start your Iowa limited liability company. Instead, you will now file a "Certificate of Organization" to begin the process. Unless there are changes with the Secretary of State. The Certificate of Organization under the new Iowa LLC law will actually have less detail than Articles of Organization typically had in the past. The only information required for the Certificate of Organization are a) the name of limited liability company and b) the street and mailing address of the registered office and the name of the registered agent.
- Operating Agreement Pitfalls: There are a couple of issues relating to operating agreements that LLC business owners must consider. The operating agreement is the document that sets forth how the LLC is governed and run. First, LLC operating agreements are not required to be in writing. While that may initially excite some LLC owners, the new law has provisions that may surprise and bite unknowing LLC owners especially with regard to management rights, profit distribution and transfers of interest. It is best practice to have a written operating agreement. Second, operating agreements may be amended orally. Again, while that may make it easy to amend the agreement it will likely remain best practice to override this statutory provision to include language in the written operating agreement requiring an amendment to be in writing. That way members may avoid the inevitable arguments that ensue when agreements are not memorialized in writing. People tend to remember things differently when agreements are not in writing and the agreement is more difficult to prove in court.
- Statements of Authority: The new law also permits an LLC to file a statement of authority with the Iowa Secretary of State and the county recorder's office. The statement of authority will serve as notice of who does or does not have authority to act for the LLC, sign documents transferring real property, or otherwise act for and bind the LLC. The statement can state the authority or limits on authority by position (e.g. member, manager, president) or a specific person or persons.
- Pay Attention to Management: The default provision with the new LLC law is one member=one vote. (Currently it's based upon ownership %). This means that even a member with a minority percentage may have the ability to have as much management authority as a member that has a majority of the membership units. Accordingly, if a majority owner wants to maintain management control, the written operating agreement will need to specify such arrangement.
- Disassociation of a Member: The new law has several provisions outlining what happens when a member leaves or is asked to leave an LLC. An operating agreement can vary the provisions contained in the law. The provisions relating to disassociation are a little complicated so it is important to get legal advice on these issues. For example, a person who disassociates may no longer have management rights but could still have the right to receive distributions. That may be a result that many members might not suspect could happen.
Please also know that the new LLC law will apply to older LLCs on Jan. 1, 2011, unless the members agree the new law will apply sooner to their company. Be sure to seek legal advice from a business attorney familiar with the new law. The changes are much more numerous and significant that set forth in this blog post. You certainly won't want unintended consequences to happen to you.