Effective January 1 of this year, Washington State’s new Limited Liability Company Act went into effect. As the limited liability company (“LLC”) has become a popular choice of entity for marijuana businesses, many marijuana producers, processors and retailers will be affected by these changes. This piece highlights a few key revisions to LLC law in Washington State.
LLC Agreements – LLC agreements need no longer be in writing. The new LLC Act provides that a LLC agreement and any amendments thereto may be oral or implied. We always recommend, however, that clients have written LLC agreements in place to avoid future ambiguity and confusion. LLC members and managers will also want to make sure that the LLC agreement requires all amendments to be in writing to help avoid unintentional verbal amendments.
Voting Rights – The default rule for voting has been changed from voting based upon equity ownership to voting on a per member or per manager basis. Thus, unless the members of an LLC want each member to have an equal vote, the LLC agreement should set out the preferred voting scheme.
Fiduciary Duties – The new law specifically sets forth the fiduciary duties of the managers and managing members of the LLC, which include general duties of loyalty and care. An LLC agreement may limit or eliminate these fiduciary duties except for the following: avoidance of intentional misconduct; implied contractual duty of good faith and fair dealing; and not making a distribution in violation of the LLC agreement or resulting in the LLC being unable to pay its debts.
Access to Records – LLCs are now required to provide more access to records and information. The new act expands the list of records that must be available for inspection by members. The certificate of formation, LLC agreement, tax returns, financial statements, consents and votes of members, annual report, articles of conversion or merger, and certificate of dissolution must be available at the LLC’s principle office. Also, unless otherwise set forth in the LLC’s certificate of formation, a written statement must be on hand that contains the following: the amount of cash and value of benefits contributed, events that trigger member contributions, rights of members to receive contributions and a return thereof, and events triggering dissolution.
Management by Board – The new act expressly allows a board of managers or committee to manage the LLC. The prior law was silent on this issue. If an LLC is managed by a board or committee, only the board or committee has the ability to bind the LLC. No person by virtue of participating on that board or committee has the right individually to bind the company. Thus, the LLC agreement should specifically set forth who has the authority to bind the company.
These are just a few of the important changes to LLC law in Washington. Existing and future LLC members and managers should consult with their legal counsel as to the full scope of changes to LLC law and its effects on their business interests.
For more information on the regulation of marijuana businesses, please contact Heather Wolf.