This blog post is third 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.
In my last blog post I picked on the new Iowa LLC law because I don’t see great benefits to LLC members with some of the changes in the law related to operating agreements. But changes relating to Statements of Authority may not be so bad. (That is if you are an LLC owner. Third parties might disagree).
Currently, Iowa LLC law says that all members of the LLC are agents of the company unless otherwise stated in the articles of organization. The new LLC law provides that members are no longer automatically agents of the company. As fellow Iowa business lawyer Marc Ward points out on his blog, "The risk of a rogue member binding or otherwise obligating the LLC will be gone."
The new law also permits an LLC to file a statement of authority with the Iowa Secretary of State. (Still amazing to me the Sec. of State has no notice of the new LLC law on its site). 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.
Third parties will need to be careful in assessing whether a member actually has authority to sign on behalf of the LLC. In doing so, third parties probably should request a copy of the Statement of Authority documentation from the LLC. This information will also likely be viewable on the Sec. of State’s Web site under the Company’s filings. It will be interesting how courts will handle the issue of "apparent authority" under the new law (i.e. where a person purports to have authority to bind the company but really doesn’t). After all, the whole purpose behind the provision is to prevent rogue members from binding the company. Is "apparent authority" thrown out the window if a Statement of Authority is filed?
A statement of authority filed in the county recorder’s office will be conclusive evidence in favor of a person who gives value for real property in reliance on the statement. Similarly, a filed statement limiting the authority of a person or position to transfer real property will constitute notice to all.
Under the new law, a statement of authority will expire 5 years after it or the most recent amendment becomes effective, unless canceled earlier.