Could your LLC benefit from filing the new Certificate of Authority Form?
Late in 2016, the Pennsylvania legislature enacted a new Limited Liability Company Act (the “Act”). The Act, which became effective for all Pennsylvania limited liability companies on April 1, 2017, introduced several new concepts. One of these is the new Certificate of Authority Form (Form DSCB: 15-8832).
Under the previous incarnation of Pennsylvania’s Limited Liability Company law, each member of a member managed limited liability company had the apparent authority to bind the company in transfers of real estate or other transactions. That meant that third parties could reasonably believe and accept that any member of an LLC had the authority to enter into transactions on behalf of that company, whether they actually had that authority or not. Section 8832(a) of the Act addresses that issue by providing that “[a] member is not an agent of a limited liability company solely by reason of being a member.” The new Certificate of Authority form allows a Pennsylvania LLC to limit the authority of its members by providing notice to the world by way of the filing of the Certificate of Authority as to whom has the authority to bind the company. The Certificate of Authority form may be used by a limited liability company to set forth, amend or cancel authority of its members to act on behalf of the company.
Who should file this form?
This form is not applicable to manager-managed limited liability companies identified as such in their certificates of organization or single member LLCs. Multiple-member LLCs that wish to limit the authority of their members to enter into contracts on behalf of the company can file the Certificate of Authority to designate the individuals who will be empowered to enter into contracts.
Once this filing is made, members of the company who are not listed on the form will have no ability to bind the company by contract.
Are all LLCs required to file a Certificate of Authority?
No; this is an optional filing. As stated above, single member or manager-managed LLCs would not file a Certificate of Authority. Only multiple member LLCs that desire to restrict who has authority to enter into transactions on behalf of the company would file the Certificate of Authority.
What if a company wants to change or eliminate this limitation?
If the designated person is to be changed or if the company wishes to revert back to all members having apparent authority, it must file a new Form DSCB: 15-8832, completing Part III (Amendment) or Part IV (Cancellation) of the form.
Companies wishing to file the Certificate of Authority should approve the filing first, either at a meeting of the members or by written consent of the members, restricting the authority of the members and appointing a specific member or members as having the authority to bind the company. Amendments or cancellation of the Certificate of Authority would also require member approval.
If you would like to learn more about the Certificate of Authority or have any other questions related to limited liability companies or the new Act, please contact William E. Lestitian, CPA, Esquire or Raymond M. Roberts, Esquire.