At yesterday's session on the new Iowa LLC Act, Dean Walker and I were asked what lawyers should do about existing LLCs and operating agreements. A great question. You need do nothing until January 1, 2011 when the current law expires. The current articles of organization will be deemed to be the certificate of organization under 489. Any management provision in the articles of organization will be deemed to be contained in the operating agreement. See generally, Iowa Code 489.1304 (2009).
If you want to get a jump on 2011 or consider opting-in to Chapter 489 before 2011, consider performing an operating agreement audit of the following subjects:
1. If the LLC is manager-managed, does it expressly provide that it is "manager-managed," "managed by managers," management is "vested in managers" or words "of similar import" as required by Iowa Code 489.407(1)?
2. Should the operating agreement restrict, eliminate or alter the duties of loyalty and care or any other fiduciary duties as permitted by Iowa Code 489.409(4)-(7)(2009)?
3. Are the manager-managed rules described in Iowa Code 489.407(3) regarding management rights and decision-making adequately addressed?
4. Because transferees of transferable interests have few rights under the default provisions of the new law, are they adequately protected in the operating agreement? See Article 5 of Chapter 489.
5. Dissociation is a new concept introduced in Chapter 489, although the Chapter 490A concepts of withdrawal, termination and cessation of membership (see in particular 490A.712) are similar. How is dissociation dealt with in the operating agreement? Are there any gaps that need to be addressed?
Of course, general rules may not cover the terms of a particular operating agreement, but these 5 points are a good start.
If you wish to adopt Iowa Code 489 before 2011, the new law permits it. Iowa Code 489.1304(1)(b) allows an LLC formed before January 1, 2009 to elect to be subject to 489 by amending its operating agreement to that effect.
-Marc Ward
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