Limited Liability Company Act

A corporation, limited liability company (LLC) or limited partnership (LP) is permitted to change (convert) from one form of entity to another by merely filing a certificate of conversion. The effect is like a merger, but the conversion eliminates the need to form a new entity. However, an Operating Agreement (LLC), Limited Partnership Agreement (LP) or By-Laws (Corporation) is required of the new form of entity.

A LLC is permitted to engage in non-business activities, the resignation of a manager or member-manger and permitting the delegation of responsibilities to others. This latter change is helpful when the LLC uses a “corporate” structure in which the managers will function as directors and officers will function as agents of the managers. The changes also permit the operating agreement to define the scope of the duties owed by a manager.

An annual report is required for LLCs and LPs. The report is due on each July 1, beginning July 1, 2002. An annual fee of $25.00 is required. A LLC or LP that fails to file will terminate its good standing and will cause its cancellation after three years. A cancelled LLC is deemed to no longer exist. Beginning January 1, 2010, a terminated LLC is permitted to reinstate itself by filing the past due annual reports. The annual report requirement introduces for the first time the concept of “good standing” to LLCs and LPs.

Non-Compete Clauses

Employers and employees are permitted to enter into agreements prohibiting the employee upon leaving the employer’s business from “directly” soliciting business from the employer’s “established customers”.
The statutory provisions do not permit “non-compete agreements” between employers and employees. The new provisions also do not address the limitations as to time or geographic scope applicable to permitted non-solicitation agreements.

However, “non-compete agreements” are permitted where the sale of a business includes the sale of goodwill or upon dissolution of a partnership.

What this means for you
  1. Encouragement for Use of LLCs. LLCs offer legal and tax advantages unavailable from any other entity. LLCs are simpler to operate than a corporation or limited partnership. LLCs do not pay franchise tax, but only a $25.00 fee each year. Converting to a LLC may provide a tax savings. The conversion provisions allow for a smooth transition from a corporation or LP to a LLC. Thus, for knowledgeable people and professionals, LLCs are the presumptive entities of choice in Oklahoma and most states.
  2. Use of Non-Compete Clauses. The statutes permit non-solicitation agreements between employers and employees, but they do not address the many other areas in which non-solicitations and “non-competes” are common. These areas include distributor agreements and joint ventures. The legality of non-solicitations and non-competes in these areas would be questionable. Non-competes may be used upon the sale of a business or upon partnership dissolution.


Bruce F. Klein, PLLC
222 NW 13th St.
Oklahoma City, OK 73103
Fax: 405-523-2108

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