The start of 2022 is here, and in addition to the usual beginning-of-year tasks for businesses, every LLC organized or qualified to do business in Ohio should familiarize itself with Ohio’s Revised Limited Liability Company Act (“New LLC Act”), which is now set to become effective on February 11 of this year (the Ohio legislature adopted the new statute in January 2021).
Ohio’s New LLC Act completely repeals the existing statute enacted in 1994. It provides for a number of sweeping, modernized changes that can be positive for Ohio businesses, including increased flexibility, clarity and less administrative burdens, but it also includes provisions that businesses will want to keep a close eye on to avoid being penalized. Ohio LLCs should take the opportunity to understand how some provisions in the Act can pose problems if their business is not in compliance after the effective date and also take time to learn how important pieces of the Act can benefit their business moving forward.
Pay Attention to These Provisions in the New LLC Act to Avoid Penalties and Obtain Benefits
Maintaining a Statutory Agent is Critical
Forming an LLC in Ohio requires the designation of a statutory agent, which may be, for example, a law firm that helps the business with formation or the founder of the business. As time passes, a business may cease to have a relationship with its original statutory agent, resulting in a need to appoint a new one. Under the New LLC Act, it is crucial that Ohio LLCs keep their statutory agent information continuously up to date to avoid penalties. Otherwise, the Secretary of State will have the ability to impose statutory penalties, including canceling an Ohio LLC’s articles, or a foreign LLC’s Ohio registration, after providing the LLC with a 30-day notice to cure the failure. An LLC would then need to apply for reinstatement by submitting a form and paying a fee. A KJK advisor can assist in identifying your business’ statutory agent or updating the name and address of a new agent.
Enforcement Against Foreign LLCs
If your business was organized under the laws of another state but conducts business in Ohio it is important to ensure that your business is registered as a foreign LLC because the New LLC Act permits the Ohio Attorney General to enforce registration requirements for foreign LLCs. Failure to conform to the requirements can subject foreign LLCs to injunctions, fines and related court costs. To avoid this, reach out to a KJK advisor to confirm whether your business is currently registered, or determine whether your business should register, as a foreign limited liability company in Ohio.
Indemnification
An Ohio LLC could previously point to the indemnification language in the state statute when drafting indemnification language into their business’ operating agreement. However, the New LLC Act no longer has a statutory provision on indemnification. Therefore, if your operating agreement references the old statute’s indemnification provisions, and you want to continue to indemnify your manager, key officers or members against liability they may incur in connection with your limited liability company, we recommend that your operating agreement be revised to describe those indemnification rights without referencing the old statute.
The Future of Ohio LLCs under the Revised Ohio Limited Liability Company Act
In anticipation of the New LLC Act’s new effective date of Feb. 11, 2022, Ohio LLCs should take this opportunity to review and potentially amend their operating agreements and related organizational documents to take advantage of the many new benefits under the new LLC Act and to protect against any risks that could arise under the new laws. Comprehensive, well-written documents and careful drafting of an operating agreement will be invaluable as the new law gains steam. Please contact Steve Bersticker (scb@kjk.com; 216.736.7219) for more information and assistance in further exploring and reacting to the full set of changes, benefits and risks of the New LLC Act and to ensure that your LLC is in compliance.