What You Need to Know About Changes to Washington’s LLC Act

On January 1, 2016, major changes to Washington’s laws governing a variety of business entities, including LLCs, corporations, partnerships, cooperatives, and nonprofit corporations, went into effect. The new law, passed in the 2015 legislative session and known as the HUB Bill, recodifies statutes governing various business entities into a single chapter of our state’s laws, RCW 23.95. The HUB Bill addresses a variety of the legal requirements for businesses entities including filing requirements, entity names, registered agents, administrative actions to dissolve or reinstate entities, and the requirements for out-of-state entities doing business in Washington. In this series of posts, I will discuss the changes this statute made to Washington’s laws governing business entities.

Perhaps the most sweeping changes enacted under the HUB Bill involve Washington’s LLC Act. As I wrote in this June blog post, the new law includes the following changes for Washington’s LLC Act, which apply to both new and existing limited liability companies:

• Boards allowed. LLCs can be managed by a Board of Directors.
• Non-waivable provisions. The new law designates fifteen (15) provisions as non-waivable, meaning that the Washington LLC Act – and not the individual LLC Agreement – will control.
• Oral LLC Agreements permitted. Like a Partnership Agreement, an LLC Agreement or specific terms of an LLC Agreement may now be oral or implied. That said, Washington LLCs should not consider foregoing written LLC Agreements in favor of an oral agreement among the members – or to even rely on the Members’ oral agreement related to any aspect of the LLC’s governance. LLCs should have written LLC Agreements and make sure those agreements include a term that requiresrevisions to the agreement be only in writing.
• Certificate of Formation changes. General principles of agency law will apply to determine whether the LLC is Manager-managed or Member-managed, rather than requiring this information to be included in the Certificate of Formation. This change was intended to eliminate discrepancies in LLC filings between an LLC’s identification in its Certificate of Formation and its annual reports regarding its management. To promote clarity and transparency, it is prudent for LLCs to continue to specify these terms both in the Certificate of Formation and in the LLC Agreement, in addition to the LLC’s annual reports.
• Fiduciary duties. Fiduciary duties for LLC Members are now included in the new Act, including duties of loyalty and care.
• Member voting. The new law establishes a default rule for member voting: one member = one vote. LLC Agreements may revise this formula, however, and allow the votes to be calculated in a different way.
• Members’ access to records. The new Washington LLC Act expanded LLC Members’ rights to inspect and copy LLC records. Similar to the rules that apply to corporations, LLC Members will have a right to inspect and copy a wider category of records than under the existing law. However, the Member must have a proper purpose related to their interest as a Member, and make a proper request. Under the new law, an LLC cannot unreasonably restrict a Member’s access to records or information, although it may restrict how the information will be used.
• Dissenters’ rights may be waived. LLC Members may now, by written Agreement, limit or eliminate their right to dissent from an LLC’s merger and demand payment for the fair value of their membership interest.
• Nonprofit LLCs. The new law explicitly authorizes the formation of LLCs that are nonprofit organizations.

Do you have questions about how these changes to the law impact your LLC? Give us a call – we are happy to discuss the advantages of having an updated LLC Agreement to account for these changes in the law.

Photo credit: tec_estromberg on Flickr