Earlier this year, Arkansas became the 20th state in the country to adopt the Uniform Limited Liability Company Act or ULLCA. While Governor Asa Hutchinson signed Senate Bill 601 into law at the end of April, the ULLCA did not take effect until September 1, 2021. S.B. 601 supersedes and replaces the Small Business Entity Tax Pass-Through Act. Any limited liability company that formed before the passage of the ULLCA may choose to be governed by the newer law.
What the ULLCA Does Differently
Although the ULLCA serves several different purposes, its main intent is the reduction of compliance risks and costs. The biggest differences between the ULLCA and the Small Business Entity Tax Pass-Through Act relate to:
- Formation. Under the ULLCA, persons wishing to form a limited liability company will be able to do so when the “certificate of organization becomes effective and at least one person has become a member or manager.” Under Arkansas’ old law, prospective LLC owners had to deliver their articles of organization to the Secretary of State, at which point their business would be recognized and ready to commence operations.
- Operating agreements. The ULLCA allows for the formation of LLCs without a written operating agreement. They may instead create an oral or implied agreement if they so wish. If the owners of an LLC do not create a written operating agreement, then they will be governed by the provisions of the ULLCA.
- Standards of conduct. The ULLCA provides greater clarity for how LLC members and managers should conduct themselves in order to preserve limited liability standing for their company or corporation.
- Removal of members. Arkansas’ old law did not delineate any clear process by which members of an LLC could remove a manager or member. Under the ULLCA, a person can be expelled if the other members make a unanimous vote; this vote must be contingent upon circumstances such as the expelled member’s unlawful status, company interest, or the dissolution of a member entity.
Broadly, the ULLCA makes the formation of limited liability companies easier and resolves long-standing ambiguities about how LLCs must be managed and whether certain LLC members can be removed from their positions.
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If you are planning to form an LLC or wish to revise your entity’s current status, a business attorney can help you review the tax implications of your decision and suggest strategies to increase your profits while minimizing your tax burden. Contact us to schedule a consultation and learn more.