The Ohio Revised LLC Act: What You Need to Know – Corporate Governance

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Ohio’s Revised Limited Liability Company Law (the “New Law”) became effective on February 11, 2022. The new law replaced Ohio’s Revised Code Chapter 1705 with Chapter 1706, revising as well as all Ohio statutory LLC laws. The new law is the first complete overhaul of its LLC laws since the original LLC law came into effect in 1994. Now that it is just over a month old, practitioners are getting to grips with the new law.

Lawmakers intend the new law to modernize Ohio LLC laws and provide more opportunity and freedom for business owners using the LLC structure. Recognizing the burden that a statutory overhaul places on business owners, the new law is designed to provide a smooth transition from the previous law. Business owners should be aware of several key aspects of the new law:

1. New Law Allows for Greater Flexibility in the Management Structure of an LLC

The new law removes the default provisions requiring LLCs to be managed by their members or by their manager. This allows Ohio LLCs, in their operating agreements, to create a management structure that works for them. Whether this management structure conforms to previous law or incorporates other corporate governance mechanisms is left to the discretion of the drafters.

2. New Law Establishes Series LLCs for Risk and Asset Allocation

The new law also establishes LLC series. In its operating agreement, an LLC may designate certain assets and liabilities as part of a series (Section 1706.76). The new law states that the debts and liabilities of the assets of the series are only enforceable against the series and not against the LLC as a whole. Series LLCs effectively separate assets and risks as if they were in different entities without having to create new entities.

3. The new law provides default provisions and centralizes derogatory provisions

The new law contains certain provisions that cannot be changed by an LLC’s operating agreement. All of these provisions are grouped together in a single article of the new law for ease of reference and clarity (article 1706.08). Therefore, the remainder of the new law sets out default provisions that apply only if the LLC’s operating agreement does not provide otherwise. This allows drafters flexibility in creating an operating agreement and also allows most Ohio LLCs to keep their current operating agreements.

4. Authority statements define a person’s specific authority with respect to the LLC

The new law creates “statements of authority” (Article 1706.19). This new provision allows an LLC to file a declaration with the Ohio Secretary of State setting forth a person’s authority to enter into transactions on behalf of the LLC. The declaration of authority can also be submitted for all persons occupying a specific role within the LLC. Third parties may rely on the declaration of authority as conclusive proof that the person executing a transaction has the authority to do so.

5. Future Changes to Ohio Business Entities

Further changes may be made to Ohio business entities in the near future. The Ohio State Bar Association’s Corporate Law Committee has indicated its intention to propose amendments to modernize Chapter 1701 of the Ohio Revised Code, which governs Ohio corporations. In addition, on March 1, the General Assembly introduced HB 585, which authorizes Decentralized Autonomous LLCs (DAOs) in Ohio, creates special purpose depository institutions, and amends the Uniform Commercial Code to provide securitization. digital assets.

Key points to remember

  • The new law does not necessarily require existing LLCs to redo their operating agreements. Business owners and their legal advisors should consider whether their existing operating agreement should be updated to take advantage of the beneficial provisions of the new law.

  • The Ohio Secretary of State has uploaded new forms to use for LLC-related state filings. Before making a deposit, check that you are using the most up-to-date form.

  • The new law provides greater flexibility in how LLCs are structured and managed and the relationship between third parties and the LLC.

  • The new law retains terminology from the previous law, including terms such as “articles of organization” and “operating agreement”.

  • Third parties may rely on declarations of authority to determine who can transact on behalf of an LLC.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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