CBA Successfully Advocates for More Business Friendly State
Monday, May 2, 2016
Posted by: Connecticut Bar Association
After a three year push by the CBA Business Law Section, House Bill 5259, An Act Concerning Adoption of The Connecticut Uniform Limited Liability Company Act or “ULLCA” unanimously passed the House of Representatives on Saturday, April 30.
Comprised of over 600 Connecticut attorneys interested and involved in business and corporate law issues, the Business Law Section has spent a great deal of time scrutinizing and debating virtually every word and clause of the Bill to craft a law to provide Connecticut businesses, their customers, and advisors with a high quality operating code.
"Enactment of the ULLCA modernizes Connecticut law governing limited liability companies and encourages businesses to remain in or relocate to the state by providing greater certainty and flexibility in the operation of today’s dominant form of doing business," said Business Law Section Chair Mark G. Sklarz of Green & Sklarz LLC. "The law represents an extraordinary 3-1/2 year effort by a drafting committee co-chaired by Marcel Bernier of Murtha Cullina LLP and David Levine of Cohen and Wolf PC who devoted countless hours and skill along with a diverse committee of business lawyers to craft an Act of enormous benefit to the Connecticut business climate."
The Act evolves from and is patterned after the Revised Uniform Limited Liability Company Act drafted and promulgated by the Uniform Law Commission. The act also has been approved by the ABA. based upon years of study and analysis to modernize and address the most salient items regarding the business organization which over the last twenty five years has become the dominant entity used by small businesses.
Connecticut has not made any significant changes to its LLC Act since adopted in 1993. Seven times as many LLCs are being formed in the state as corporations. Since then, fifteen states have adopted the ULLC, and another three are contemplating adopting it this year. Connecticut will be the 10th state to enact the most recent version of the Uniform Act.
In essence, a limited liability company is a hybrid between a corporation, affording limited liability to its owners (referred to as members), and a partnership, allowing a “pass-through” tax structure and avoiding double taxation without the eligibility limitations of an “S” corporation. Further, an LLC allows members substantial flexibility through contract (known as an operating agreement) between or among its members without governance and statutory formalities imposed upon a corporation. As a result, the statutory provisions governing LLCs are basically “default” rules, applicable to situations not addressed in an operating agreement. The combination of limited liability, favorable tax attributes, contractual flexibility and somewhat lower organizational costs has resulted in LLCs becoming the predominant business entity since its introduction into the law, particularly among small businesses.
The nationwide proliferation of LLCs as the primary entity to conduct business over the last two decades has created a body of law and experience which necessitates an update of the current Connecticut LLC act. Enactment of ULLCA by the General Assembly will achieve this objective and moreover support an important goal of the Business Law Section to adopt appropriate uniform acts which are intended both to create a business friendly environment and to provide common precedent and predictability through such uniform acts.
In addition to being more comprehensive and modern than the Current Act, the New Act will be beneficial for small LLCs which do not have a written operating agreement because it provides a clearer set of default rules which will apply when the LLC does not have a written operating agreement.
Click here to view testimony from the February 29, 2016 meeting of the Judiciary Committee featuring, CBA President-elect, Monte E. Frank; Business Law Section Chair, Mark G. Sklarz; Business Law Section LLC Committee Co-chairs Marcel J. Bernier and David M. Levine; and Litigation Section Vice Chair William J. Sullivan.