This blog post is second in a series of blog posts highlighting changes in the 2009 Iowa Limited Liability Company Act. The new law applies to all LLCs filed in Iowa after January 1, 2009. The new LLC law will apply to older LLCs beginning on January 1, 2011 unless otherwise agreed by the members.
Beginning in 2009 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.
- LLCs are not required to have an operating agreement in writing but watch out. On its face the fact an operating agreement is not required in writing might excite LLC owners. However, it is not advisable to go without a written operating agreement, particularly if there are two or more members in the LLC. Even a single member LLC should consider a written operating agreement in order to protect against piercing the corporate veil. If an operating agreement is not in writing, the provisions of the new statute will automatically apply to the LLC. In many instances, the statute 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.
- Operating Agreements may be amended orally. LLC owners may amend their operating agreement orally under the new statute. 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 enevitable 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.
Check back for more on the Iowa LLC law changes in future blog posts.