Category: Operating Agreements

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.

WHAT HAPPENS WHEN WIFE SUCCEEDS TO DECEASED HUSBAND’S MEMBERSHIP IN 50/50 LLC?

A major lesson of the post by Peter Mahler under the link below is that a multi-member LLC operating agreement must be very clear as to the management of the LLC when a spouse dies and the surviving spouse succeeds to the deceased spouse’s management rights.

Here’s the link:  https://www.nybusinessdivorce.com/2020/03/articles/arbitration-and-mediation/no-laughing-matter-deadlock-dissolution-petition-targets-legendary-nyc-comedy-club/

TRANSFER RESTRICTIONS AND ASSIGNMENT OF LLC INTERESTS

Peter Mahler of the FarrellFritz law firm summarizes his latest post from his New York Business Divorce website as follows:

“The Appellate Division, Second Department’s ruling last month in Berhend v. New Windsor Group, LLC illustrates the disastrous results when care is not taken by the assignee of an LLC interest to determine the validity of the assignor’s interest and the existence of transfer restrictions in the LLC’s operating agreement.”

The importance of the post to every LLC lawyer is self-evident.

Here’s the link to Peter’s post:

https://www.nybusinessdivorce.com/2020/03/articles/llcs/always-check-provenance-before-taking-an-assignment-of-llc-interest/

BREACH OF ANTI-WITHDRAWAL PROVISIONS

Peter Mahler has described his latest post in “New York Business Divorce” as follows:

This week’s New York Business Divorce highlights an interesting decision by Commercial Division Justice Andrea Masley addressing claims that the minority members of an LLC breached the operating agreement’s anti-withdrawal provisions by demanding a buyout and bringing a damages suit against the managing member.

Needless to say, the post, although it is based on a recent New York case, is likely to be of interest to LLC lawyers in many jurisdictions.

The link to the post is:  https://www.nybusinessdivorce.com/2020/01/articles/llcs/a-case-of-llc-withdrawal-symptoms/

AMBIGUITY IN OPERATING AGREEMENTS

The new post by Peter Mahler under the link below provides a powerful illustration of the importance of avoiding ambiguity in multi-member LLC operating agreements—and of how difficult it can be to avoid this ambiguity.

https://www.nybusinessdivorce.com/

DEALING WITH “FLOATING INTERESTS” IN LLC OPERATING AGREEMENTS

The attached excellent new post by Peter Mahler, based on a very recent New York case, describes the very scary legal and  persons consequences that can arise when members of a multi-member LLC fail to define adequately in their operating agreement the circumstances in which the members’ rights to share in LLC profits will change because of changing circumstances.

The Perils of Indeterminate LLC Membership Interests

 

“NULL AND VOID”

The new post under the link below discusses a Delaware Court of Chancery case that, in essence, upholds, despite traditional equitable considerations, LLC agreement terms providing that certain types of transfers of membership rights will be “null and void.”  The issue addressed in the case lurks in many LLC operating agreements not only under the Delaware Limited Liability Company Act but under many other LLC acts.

Here’s the link:

https://www.klgatesdelawaredocket.com/2019/07/chancery-court-finds-that-language-in-an-llc-agreement-that-states-an-assignment-is-null-and-void-trumps-the-common-law-and-renders-equitable-defenses-ineffective/

HALF-BAKED LLC AGREEMENTS

Peter Mahler introduces the post below as follows:

“Half-Baked LLC Agreement Yields Improvised Valuation Decision”
By Peter Mahler

A rudimentary, “de facto” operating agreement with a cryptic withdrawal/buyout provision predictably set the stage for a unique valuation contest in the Delaware case highlighted in this week’s New York Business Divorce. Continue Reading…