What You Should Know About Ohio’s Revised Limited Liability Company Act

The law governing limited liability companies (“LLCs”) in Ohio is being replaced. Effective February 11, 2022, Ohio Revised Code (“ORC”) §1705 (the “Prior Act”) will no longer be in effect and will be replaced by ORC §1706 (the “New Act”). This overhaul of the Prior Act is intended to modernize and improve the flexibility of the laws governing LLCs in Ohio. With the popularity of LLCs soaring, it’s important that current and future business owners understand what this change means for them and opportunities to modernize their governing documents.

The New Act has several new features that set it apart from the Prior Act, the most notable being: (1) the elimination of the distinction between member-manager and manager-managed LLCs; (2) the ability to create series LLCs and new default governing provisions; (3) administrative penalties for failure to maintain current records with the Ohio Secretary of State; and (4) the absence of dissenter’s rights.

Beginning on February 11, 2022, new filing forms will be uploaded onto the Ohio Secretary of State’s website. Those who are familiar with the old Articles of Organization (“Articles”) may be surprised to find that the Articles no longer distinguish between for-profit and non-profit LLCs. If an LLC now wishes to be identified as a non-profit, it must do so in the operating agreement, and pursuant to all applicable state and Federal laws.

Similar to the Prior Act, the New Act has set forth provisions to govern LLCs where there is no operating agreement, or if the operating agreement is silent on the matter. The most notable of these defaults is that all LLCs are now perpetual in duration and member-managed unless the operating agreement provides otherwise, making LLCs more similar to corporations. While the removal of the distinction between member-managed and manager-managed LLCs may take some getting used to, this change is intended to allow for the easier creation of managers, officers, board of directors, and other governing bodies within LLCs.

The New Act permits members to waive and modify their fiduciary duties if there is a manager. While the implied covenants of fair dealing and good faith always apply, members will be happy to know that they can reduce their liability regarding fiduciary duties further. Additionally, members many appoint a proxy or agent to consent or act for them. The New Act allows for multiple ways of appointing a proxy or agent, two of which are filing a Statement of Authority with the Ohio Secretary of State or by the operating agreement itself.

All existing LLCs must now maintain a statutory agent in Ohio, or their registration will be cancelled. LLCs have thirty days to update this information or risk cancellation. The New Act also imposes a fine for any foreign LLC that is not registered with the Ohio Secretary of State. Failure to register also allows the Ohio Attorney General to sue and seek an injunction, court costs, and interest.

Those wanting to further limit their liability will be happy to know that now, pursuant to §1706.473, LLCs may cut off claims of creditors after dissolution. In order for an LLC to cut off claims after the entity dissolves, they simply need to publish a notice of dissolution that adheres to the requirements set forth in §1706.474. Once the statutory deadline of at least 90 days has been satisfied, creditors are prohibited from bringing their claims if they have not already done so.  

While the New Act may or may not impact the goings on of any particular LLC, it is critical that anyone with any interest in an Ohio LLC be aware of how these changes will impact the LLC.  Companies should review their governing documents in order to determine whether further action is needed to ensure compliance with the New Act. If you have any questions about the New LLC Act and how it affects your LLC, please contact Emily T. Feeley at Kohnen & Patton LLP.