Major Changes Coming to Washington LLC Law

November 2nd, 2015 - Carmichael Clark

Major changes are coming to Washington’s law on limited liability companies. Attorneys representing LLCs should be aware of these changes. But so should anyone who owns a membership interest in an LLC. The state legislature approved the changes in the 2015 session. The changes take effect January 1, 2016. And the changes are significant. Here are just a few of the more important revisions:

Oral LLC Operating Agreements.

Washington’s LLC statute contains default provisions that govern the operation of an LLC. Those default provisions can be changed and added to by what is called an LLC operating agreement. Many LLCs have operating agreements, and many of these agreements are very detailed. Under the current law, operating agreements must be in writing. But under the new law, agreements can be “oral, implied, in a record, or in any combination.”

Designation of LLC Manager.

The current statute requires the LLC’s certificate of formation to state whether the LLC is managed by the LLC’s members or by a manager. The new law eliminates this requirement. It provides management of the LLC would be identified in the operating agreement. Also, the LLC’s initial and annual reports to the secretary of state still must include this information.

Fiduciary Duties Owed to LLC.

The current statute does not state what, if any, duties an LLC’s members or managers owe to the LLC. Those duties currently come from court cases. The new law contains a section describing the fiduciary duty of care and duty of loyalty that a member or manager owe to the LLC. The new law also allows these duties to be “modified, expanded, restricted, or eliminated” by the LLC’s operating agreement.

Voting by Members.

The current statute provides that the default voting by members is by the amount of capital contributed by each member. Meaning a majority is determined by the members contributing a majority of the capital. Under the new law, the default provision is a majority is determined per capita. Meaning one vote for each member.

Inspection of Records by Members.

The current statute provides members have a right to only certain, limited records such as tax returns and financial statements. The new law expands a member’s right to include accounting records in certain circumstances.

There are many other changes of significance.

Existing LLCs should reexamine their LLC operating agreements with their attorney and decide what, if any, changes should be made. And it will be interesting to see how these changes affect lawsuits brought between members about LLC governance and finances.

Disclaimer: This article and blog are intended to inform the reader of general legal principles applicable to the subject area. They are not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

Stay Informed

To receive updates or be informed when we post a new article.