Don’t Let Your LLC Expire: LLC Owners Should Check Formation Documents to Confirm Perpetual Duration

When the New Jersey Limited Liability Company Act originally went into effect in January 1994, the Internal Revenue Service required that a limited liability company have at least a majority of the characteristics of a partnership in order to be taxed as a partnership rather than a corporation. The IRS regulations were changed on January 1, 1997 to provide that the LLC can “check-the-box” to elect to be classified as a corporation or flow-through (partnership or disregarded) entity.

One of the characteristics of a partnership is “limited duration,” with thirty years being considered the longest duration to meet this test, so most New Jersey limited liability companies formed between the New Jersey Limited Liability Company’s enactment in 1994 and January 1, 1997 provide that the LLC will dissolve thirty years from its formation.

Given that we are now thirty years from 1994, any LLC owner whose LLC was formed between 1994 and 1997 should check their original LLC formation documents to confirm that the LLC’s term is perpetual. Otherwise, an amendment to the LLC’s Certificate of Formation should be made before the expiration of the LLC’s term to provide that the term of the LLC is perpetual. If an amendment is not filed before the LLC’s term expires, the LLC will automatically terminate on the expiration date listed in the original Certificate of Formation.

If you are unsure of whether your LLC has a term that is set to expire, please contact us so that we can review your LLC documents to determine if an amendment is necessary.