Business owners are often told the importance of having an agreement in place that sets forth the understandings and agreements between the co-owners with respect to the affairs of the company. This will be truer for Ohio limited liability companies, beginning on January 1, 2021, when Ohio’s new limited liability company act (the “Revised Act”) goes into effect.
Absent a written agreement, the default rules of Ohio law govern the members’ conduct. These default rules can differ drastically from the parties’ intent. There are a number of key differences between the default rules of Ohio’s current limited liability company act and the Revised Act, which make it more important than ever to make sure you have an operating agreement in place that accurately reflects the intent of the members.
For example, under the default rules of the current act, members are entitled to receive distributions in proportion to their capital contributions. However, under the Revised Act, distributions are shared by the members equally. Additionally, under the default rules of the current act, management of a company is vested in its members in proportion to their capital contributions. However, under the Revised Act, management of the company is vested in a majority of the members, irrespective of their percentage interest in, or capital contributions to, the company.
Having a written agreement in place, which accurately reflects the members’ agreements and understandings, prevents the parties from becoming subject to the potentially unintended consequences of the default rules. For more information on the Revised Act and how it will impact your business, please see my article Ohio’s Revised LLC Statute Brings Flexibility (and uncertainty) to Ohio Businesses. Please contact your Cavitch attorney to discuss how the Revised Act affects your business and assist you with your business needs.