Thanks to the diligent work over the past seven years of the dedicated members of the Partnership and LLC Law Committee of the WSBA's Business Law Section, earlier this year the Legislature passed and Gov. Jay Inslee signed into law a new Washington Limited Liability Company Act (RCW Ch. 25.15). The Act takes effect January 1 and applies to all Washington LLCs, not just those formed after the Act's effective date; however, it will not affect any actions commenced prior to January 1, as well as any proceedings brought or rights accrued before that date.
Considering options for a new Washington LLC act in 2009, the Committee decided against recommending adoption of the Uniform Law Commission's Revised Uniform Limited Liability Company Act. The Committee focused instead on modernizing and improving Washington's existing act, which had been enacted in 1994. The result is a comprehensive reworking of the Act that incorporates across-the-board changes to the ways in which LLCs are to be set up and governed.
As noted in the Committee's report:
The Committee's primary goals were to make the LLC Act more flexible and user-friendly, to eliminate or modify provisions that create unnecessary problems or pitfalls for business people forming and operating LLCs and to update and modernize the language of the LLC Act.1
The focus of this article is to highlight 10 particular aspects of the new Act that affect the managers and members of LLCs and those who do business with them. This article is not a comprehensive review of the many changes to the existing law; practitioners in this area should take the time to familiarize themselves with all of the amendments.
Oral LLC Agreements
Under the existing act, LLC agreements generally must be in writing to be effective. Although oral agreements are allowed, pursuant to freedom of contract principles, they cannot override the current statute's default rules. This means that under the current statute, an oral agreement generally will not override any of the rules contained in the statute. As amended, and set forth in new RCW 25.15.005(7), the new Act removes the writing requirement and provides that an LLC agreement may be "oral, implied, in a record, or in any combination."
"This change will allow an LLC agreement that is oral or implied, as well as a written LLC agreement, to override any of the statutory default rules, other than the non-changeable default rules listed" in the Act and discussed below.2
Tip: Make sure your clients' LLC agreements are in writing and can only be amended in writing.
Non-Waivable Default Rules
In the existing act, trying to find all of the non-waivable and non-changeable default terms was akin to an Easter egg hunt. One had to find all of the subsections that do not start with "Except as provided in a limited liability company agreement."3 or "Unless otherwise provided in a limited liability company agreement."4 Those subsections that do not include one of these initial qualifying phrases are the terms that cannot be changed in an LLC agreement.
Under the new Act, all of the non-waivable terms are listed in new RCW 25.15.017(3), which states:
(3) A limited liability company agreement may not:
(a) Vary a limited liability company's power under RCW 25.15.030 to sue, be sued, and defend in its own name;
(b) Vary the law applicable to a limited liability company under RCW 25.15.032;
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