Category: Operating Agreements

UNSIGNED LLC OPERATING AGREEMENTS

The new post in the excellent blawg entitled New York Business Divorce is under the link below.  Its author introduces the post as follows:

In this week’s New York Business Divorce, we tackle two important legal issues for LLC owners. First, the circumstances in which an upon-death membership interest transfer provision in an unsigned, non-final operating agreement may be enforced. Second, whether a membership interest transfer provision in an operating agreement trumps a conflicting bequest in a last will and testament.

Here’s the link:  Unsigned, Non-Final Operating Agreement Trumps Conflicting Testamentary Bequest of LLC Interest | New York Business Divorce (nybusinessdivorce.com)

WRITTEN LLC OPERATING AGREEMENT VS. SUBSEQUENT ORAL AGREEMENT

Under the link below is a new post by Peter Mahler relevant to all too many LLC clients.  Peter summarizes the issue in the post as follows:

The interaction between an LLC’s operating agreement and a subsequent, informal deal between the members raises difficult questions surrounding the enforceability of either agreement. In a recently-filed Manhattan Commercial Division case, the Court granted the plaintiff a preliminary injunction, signaling to the parties that the plaintiff was likely to succeed on his claim to enforce the informal deal notwithstanding arguably contrary provisions in the operating agreement. The case reminds us that the formality requirements of an LLC operating agreement may give way to an informal agreement when both LLC members manifest their intent to be bound by the informal agreement

Here is the link:

https://www.nybusinessdivorce.com/2021/02/articles/buyout/a-shotgun-buy-sell-agreement-and-an-email-deal-walk-into-a-beachside-bar/

NAKED EXPULSION PROVISIONS

The post from Peter Mahler under the link below is about a recent NY LLC case upholding the validity of a bare-bones expulsion clause in the operating agreement of a NY multi-member LLC.  The decision is well-reasoned, but in my view, because expulsions are major LLC actions, they should be addressed in detail in operating agreements.

Here’s the link:

https://www.nybusinessdivorce.com/2020/10/articles/expulsion-and-removal/court-enforces-llc-agreements-naked-expulsion-clause/

TYPES OF PROVISIONS NORMALLY INCLUDED IN OPERATING AGREEMENTS

There are nine such provisions—namely, provisions that:

    1. Identify the members and managers;
    2. State the members’ duties to make contributions of cash, property or services to the LLC;
    3. State the members’ rights to share in LLC income and losses;
    4. Define the events that will cause the members to cease being members (e.g., death or resignation) and the buy-outs or other consequences of these events;
    5. Define the LLC’s management structure,
    6. Define the members’ voting power;
    7. Require unanimous member votes for admissions of new members;
    8. Impose comprehensive fiduciary duties on the members and managers; and
    9. Provide for dispute resolution by mediation, arbitration or litigation.