As mentioned in an earlier post, under the New Iowa LLC Act (489.301(1)) members are not agents of an LLC merely by being members. This is a break from the statutory apparent authority concept found in the current Iowa law and dating back to the 1914 Uniform Partnership Act. This does not mean that a member's conduct cannot otherwise bind the LLC. For instance, as the commentary to the RULLCA points out, the law of apparent authority, respondeat superior or negligent supervision might result in liability of an LLC for a member's conduct (See 489.301(2))
By default under current law an LLC is managed by its members unless the articles of organization or operating agreement provide for management by managers. This concept is carried over to the New Iowa LLC Act provided that it is only the operating agreement that can change management of an LLC from member-managed to manager-managed. The operating agreement must expressly provide that (a) the LLC is "manager-managed" (b) the LLC is "managed by managers" (c) management of the LLC is "vested in managers" or (d) words of similar import. Be safe, use one of the first three phrases recognized by the Act to avoid all doubt.
Now this is where things get a little complicated. To fully understand the management options available under the new Iowa LLC Act (as well as other provisions of the Act) you have to go back to 489.110(1) and (2). This is where the concept of the LLC as a contractual construct and not a creature of statute is expressed.
Section 489.110(1) establishes the primacy of the operating agreement by declaring that it governs (a) relations among the members as members and between members and the LLC, (b) the rights and duties of the managers, (c) the activities of the company, and (d) amending the operating agreement.
Section 489.110(2) establishes the Act as the place to turn to fill in the gaps, if any, not covered by the operating agreement ("To the extent the operating agreement does not otherwise provide for a matter described in subsection (1), this chapter governs the matter.")
Section 489.110(3) takes back some of the broad authority granted to the operating agreement in subsection (1). More about subsection (3) in a later post.
Back to 489.407 and the default rules for managing an LLC. Unless the operating agreement provides otherwise the following rules apply to a member-managed LLC: (a) management is vested in the members, (b) each member has equal rights in the management of the LLC, (c) differences as to matters in the ordinary course of business are decided by majority of the members, (d) decisions outside the ordinary course of business including a sale of all or substantially all of the LLCs assets require unanimous consent of the members, (e) amending the operating agreement requires unanimous consent of the members, and (f) mergers, conversions and domestications require unanimous consent under Article 10.
If the operating agreement provides for a manager-managed company, the following rules apply: (a) except as provided elsewhere in the Act matters related to the activities of the LLC are decided by the managers, (b) each manager has equal rights in the management of the LLC, and (c) differences arising among the managers in the ordinary course of business are decided by a majority of the managers.
Decisions outside the ordinary course of business in a manager-managed LLC,including a sale of all or substantially all of the LLCs assets, mergers, and conversions, as well as amendments to the operating agreement, require unanimous consent of the members.
Managers are selected by a majority of the members and can be removed at any time by a majority of the members without notice or cause.
One final point appoint the default decision-making rules under the new Act. Unlike the current default rule that provides for members voting power to be weighted based on the capital contributions of the members, the new Iowa LLC Act provides for votes based on one member, one vote.
-Marc Ward
Comments