Alabama’s “New” LLC Act

The first of this year brought Alabama’s “New” LLC Act into its fullest effect. In the concise article below, Cumberland Law Review Junior editor, Xan Ingram, writes about how the legislation will affect both LLCs and future litigation.


Xan Ingram

In 2014, Alabama revised its laws regarding Limited Liability Companies [hereinafter “LLCs”],[1] bringing with it sweeping changes to the existing Limited Liability Act. The new LLC Act went into effect in 2015 for any LLCs formed on or after January 1, 2015.[2] However, LLCs formed before January 1, 2015 were not subject to the changes until January 1, 2017.[3] Presently, all LLCs in Alabama, regardless of when they were formed, are subject to the new LLC Act.[4] The new LLC Act is unique to Alabama, but in many respects is in line with the Revised Uniform Limited Liability Company Act, the Revised Prototype Limited Liability Company Act, and LLC Acts in Colorado and Delaware.[5]

Perhaps one of the most significant changes the new Act brings about is that every LLC in Alabama is required to have a company agreement, whether implied, oral, or written.[6] However, even with the State’s allowance of oral or implied agreements, LLCs in Alabama would be wise to ensure that they have written agreements.[7] A failure to do so could result in the LLC running afoul of the Statute of Frauds for agreements spanning more than one year.[8] An illustrative Delaware case, Olson v. Halvorsen, provides persuasive authority for the proposition that by allowing oral or implied agreements for LLCs, states do not necessarily intend to let LLCs bypass the Statute of Frauds.[9] This new change is almost sure to bring about increased litigation.[10]

Another significant change in the new Act is that LLCs may, by their company agreements, be managed by either managers, members, or other parties they designate.[11] This is a shift from the old Act which required agreements to designate whether the LLC was managed by a manager.[12] Previously, if an LLC’s agreement failed to do so, it would be deemed as managed by its members.[13] Additionally, the new Act allows for the formation of “series LLCs” organized under current LLCs but still retaining their own assets and liabilities.[14] Alabama is the twelfth state to allow these “series LLCs.”[15]

The new Act also changes many other aspects of LLC operation and management. Among them, LLCs will now unambiguously be allowed to have either for-profit or not-for-profit purposes;[16] LLCs may engage in one-step conversions between LLCs and third parties, both in-state and out-of-state;[17] and, increased limits on the fiduciary duties owed by LLC members and managers.[18] These are just a few of the many changes resulting from the change in the law. The new Act is expected to give LLCs more flexibility to operate however they please,[19] and is expected to make Alabama more business-friendly in general.[20] However, when laws are changed, litigation is sure to follow as different parties interpret the law differently.[21] As a result, LLCs formed before 2015 and now subject to the new Act, would be wise to seek counsel to ensure they are operating under the strictures of the current law.


[1] Joshua “JJ” Gotlieb, The Alabama LLC Act of 2014, Sirote (June 16, 2015), https://www.sirote.com/blog/tax-planning/the-alabama-llc-act-of-2014-the-changes-you-need-to-know. See generally Ala. Code § 10a-5a-1.01¾10a-5a-12.05 (2014).

[2] Jonathan W. Macklem, The Implications Of Alabama’s New Limited Liability Act (LLC), Christian & Small (Oct. 21, 2014), http://csattorneys.com/the-implications-of-alabamas-new-limited-liability-act-llc/.

[3] Id.

[4] Id.

[5] Doug Batey, Alabama Legislature Passes New LLC Act, LLC Law Monitor (Mar. 19, 2014), http://www.llclawmonitor.com/2014/03/articles/conversions/alabama-legislature-passes-new-llc-act/.

[6] Gotlieb, supra note 1.

[7] Id.

[8] Id.

[9] Olson v. Halvorsen, 986 A.2d 1150, 1159 (Del. 2009).

[10] Macklem, supra note 2.

[11] Batey, supra note 5.

[12] Id.

[13] Id.

[14] Macklem, supra note 2.

[15] Batey, supra note 5.

[16] Id.

[17] Id.

[18] Macklem, supra note 2.

[19] Id.

[20] Id.

[21] Id.

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