Bradley & Riley PC

December 2008 - Effective January 1, 2009, a new law governing limited liability companies in Iowa will take effect. The new law is Iowa Code Chapter 489. During the transition period between January 1, 2009, and January 1, 2011, LLCs formed prior to January 1, 2009, can elect to be covered by the new law or may continue to operate pursuant to the existing statute. However, on January 1, 2011, the current LLC statute (Iowa Code Chapter 490A) will be repealed and all LLCs will be subject to Iowa Code Chapter 489.

Some of the most important changes that you should be aware of are set forth below.

Written Operating Agreement

Under the current law, operating agreements must be in writing unless otherwise provided in the articles of organization of the LLC. Under the new law, operating agreements may be oral, and even a written operating agreement could be modified orally or impliedly based on member conduct. Therefore, for any LLC covered by the new statute, it is critical that the operating agreement be in writing and provide that all amendments must be written and signed by all parties.


The new LLC law provides a series of rules that may be divided into two tiers: (1) those rules that are mandatory for all LLCs; and (2) certain rules that are flexible and may be modified in the operating agreement. This second tier of rules are referred to as default rules. One default rule under both the current and new law is that an LLC is managed by its members. However, under existing law, the articles of organization or operating agreement may provide for manager management. By contrast, under the new law, the operating agreement is the exclusive mechanism for specifying that an LLC is manager-managed.


Unless their operating agreements provide a different approach, LLCs subject to the new law will face a new set of default rules, many of which may be undesirable to company members. The new default rules include the following:

Voting power is one-member, one-vote. This is the opposite of the existing default rule that member voting power is based on capital contributions; and

Decisions as to such matters as a sale of all or substantially all the assets, amending the operating agreement, or a merger require the unanimous consent of the members of a member-managed LLC and a manager-managed LLC.

Fiduciary Duties

The new law expressly imposes fiduciary duties upon members both to the LLC and to the other members. This is a deviation from the current law and potentially imposes new risks on members of member-managed companies. In addition, under the statutory default rules, the duty of loyalty and the duty of care have been reformulated. Each duty may be modified in the operating agreement. The potential for new liability and the flexibility to deviate from the default rules creates opportunities for members to negotiate a custom set of rules for each business venture. However, at the same time, the default rules set a trap for members of an LLC that do not invest attention in the operating agreement.


Overall, this change in law means that the members and managers of every Iowa LLC must undertake a careful review of their existing documentation. In nearly all cases, LLCs without operating agreements will need to consider adopting an operating agreement immediately. Additionally, for LLCs with an existing operating agreement, amendments will very likely be required before January 1, 2011.


Categories: Business Law

© 2024 Bradley & Riley PC. All rights reserved.