Ward on Iowa Limited Liability Company Law

So, What Do You Think of the New Iowa LLC Law?

It's been four weeks since Iowa Code Chapter 489 went into effect.  Over 300 LLCs have been formed under the new law.  What are your thoughts about the new law now that you have had a chance to work with it?

This isn't just an idle question put forth by a blogger reaching for something to write about.  The Iowa Bar Association's LLC Committee is meeting next Tuesday to discuss issues that have come up since the beginning of the year.  A representative of the Iowa Secretary of State's office will also be at the meeting.

Currently on our agenda are two items:  (1) Section 202 regarding the certificates of organization and related issues with respect to the registered agent and (2) statements of authority under Section 489.304.

As chair of the committee, I would really like to hear your thoughts on the use of statements of authority.  It appears that the real estate bar is struggling with this concept and there is a lot of poor statutory interpretation contributing to the problem.  One solution to the issue is the adoption of an ultra vires provision like the one found in the Iowa Business Corporation Act.  What do you think?

-Marc Ward

Updated Form Operating Agreement Based on the Default Provisions

I've had reason to use my own form in the past several weeks and found some things that needed tweaking.  Attached here is a new and modestly improved operating agreement.  Remember, like the one it replaces, this is based on the default provisions of the new Iowa LLC Act.  You will most likely want to change it significantly.

-Marc Ward

Selling Real Estate Under the New Iowa LLC Act

A concern was posted today on the Iowa Bar's Real Estate Law list serve regarding whether the consent of all the members of an LLC is required under Chapter 489 in order to sell real estate owned by a manager-managed LLC.  First of all, the author of the post cites a section of Chapter 489 dealing with the sale of all or substantially all of the assets of an LLC outside the ordinary course of business.  Second, the answer is the operating agreement will control.

Remember from past posts that Chapter 489 is a default statute.  With certain exceptions (enumerated in Section 489.110(3)) the operating agreement controls (1) the relationship among the members and between the members and the LLC, (2) the rights and duties of the managers, and (3) the conduct of the activities of the LLC.  SeeIowa Code Section 489.110(1)(2009). Thus, the terms of the operating agreement will dictate the approval necessary.  Most likely in manager-managed LLCs the managers will have the authority to sell real estate in the ordinary course of business and some level of approval will be required for sales of all of the assets outside the ordinary course.

The author raises a second issue with respect to Statements of Authority and whether the reference to recording a "certified copy" of the statement in the county recorder's office means a copy certified by the Iowa Secretary of State.  The answer is YES.  Section 489.302(6) is derived from Section 303 of the Revised Uniform Partnership Act.  While the Official Comments to the Revised Uniform Limited Liability Company Act are silent on this issue the Official Comment on Section 303 of RUPA states that "the statement recorded with the land records must be a certified copy of the original statement filed with the Secretary of State."  To me, this means certified by the Iowa Secretary of State.

-Marc Ward

Ambiguity in the Iowa Certificate of Organization

An issue has come up on the first LLC to be organized under Iowa Code Section 489.  The first filing of a certificate of organization under Iowa's new LLC Act was rejected by the Secretary of State.  Like me, the Secretary of State interprets 489.201 to require, although not very artfully, only the name of the LLC and the name and address of its registered agent.  However, another permissible interpretation is that two addresses are required; the registered office of the LLC and the address of the registered agent. 

 

The first interpretation is based on (1) the use of the word "registered" to refer to the office and the agent and (2) the desire to simplify the certificate and make it merely a notice filing as distinguished from articles which imply a grant of authority from the state.

 

The second interpretation is based on a close reading of Section 489.113 and the definitions of "principal office" and "registered office" at 489.102(18) and (20), respectively. It is also supported, arguably, by the language of the Uniform Act which refers to designated offices instead of registered offices. I don't think that this is what the Iowa committee intended when it changed designated to registered.  My recollection is that we interpreted a designated office to be the same as a registered office and made the change to be consistent with other business statues in Iowa.  Also, the use of the plural for address in 489.201 adds more confusion.  I assume that means the street and mailing addresses may not be the same, but I suppose others could read it differently.

 

The bottom line is this:  I believe all the certificate need contain is the name of the LLC and the name and address (street and mailing, if different) of the registered agent.

Does anyone disagree?

Here are the relevant statutory provisions

489.102(18). "Principal office" means the principal executive office of a limited liability company or foreign limited liability company, whether or not the office is located in this state.

489.102(20). "Registered office" means any of the following:

a. The office that a limited liability company is required to designate and maintain under section 489.113.

b. The principal office of a foreign limited liability company.

489.113(1). A limited liability company shall designate and continuously maintain in this state all of the following:

a. A registered office, which need not be a place of its activity in this state.

b. A registered agent for service of process.

489.201(2). A certificate of organization must state all of the following:

a. The name of the limited liability company, which must comply with section 489.108.

b. The street and mailing addresses of the initial registered office and the name and street and mailing addresses of the initial registered agent for service of process of the company.