Category: Operating Agreements

ARTICLE ABOUT UNWRITTEN OPERATING AGREEMENTS

By , February 6, 2018 12:40 pm

The article cited below about the above topic is by a leading LLC scholar.  It merits careful study.

Here’s the cite:

Business Law Today
September, 2017
Department
Daniel S. Kleinberger
Copyright © 2017 by the American Bar Association; Daniel S. Kleinberger

FROM THE UNIFORM LAW COMMISSION: LIKE GREAT BRITAIN, A LIMITED LIABILITY COMPANY MAY HAVE AN UNWRITTEN CONSTITUTION

Under Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 291 (Del. 1999), the operating agreement is indubitably the “cornerstone” of a limited liability company. This column examines the problems arising when that cornerstone is unwritten.

WHEN IS A PERSON A “MEMBER” OF AN LLC?

By , January 18, 2018 1:33 pm

Peter Mahler’s post, under the link below, discusses a recent New York trial court case addressing under the Delaware Limited Liability Company Act an issue about whether a particular interest holder in the Delaware LLC in question was a member of the LLC for purposes of statutory access to the LLC’s books and records.

For lawyers who draft LLC operating agreements, the lesson of the case and the post is this:  Make sure that operating agreements that you draft have no ambiguities as to who is and who is not a member.

Here’s the post:

http://www.nybusinessdivorce.com/2017/10/articles/access-to-books-and-records/member-name-may-access-llc-books-records/

“BARE NAKED ASSIGNEES”

By , January 12, 2018 12:48 pm

The post by Peter Mahler under the link below is the best brief discussion I’ve seen anywhere about the rights of “mere” (or “bare naked”) assignees of LLC membership rights.  The key notion is:  If an assignee has any legal rights whatsoever as an assignee, he or she must also have legal remedies by which to protect those rights.

But a well-drafted operating agreement will ensure those remedies as a contractual matter.

Here’s the link:

https://www.nybusinessdivorce.com/2017/11/articles/access-to-books-and-records/can-bare-naked-assignee-demand-access-llc-records/

SIGNING DOCUMENTS TOO SOON

By , November 9, 2017 4:13 pm

The excellent Peter Mahler post under the link below discusses a recent Delaware case in which the parties signed deal documents before final approval by their lawyers.  The result was disastrous.  This issue comes up often in LLC formation practice.  I generally try to persuade my clients to not even file articles of organization, much less launch their business, before they agree with what I propose as the final version of their operating agreement and sign it.

Here’s the link:  http://www.nybusinessdivorce.com/2017/09/articles/delaware/dont-let-deal-get-ahead-documents/

PURPOSE CLAUSES IN LLC OPERATING AGREEMENTS

By , October 13, 2017 8:11 pm

As Peter Mahler has written in his post under the link below, countless thousands of LLC operating agreements provide that the purpose of the LLC is “any lawful purpose.”  This language can be a problem when a member seeks statutory dissolution of an LLC on the ground that the LLC cannot achieve its lawful purpose.  In the August 16, 2017 New York appellate decision discussed in Peter’s post, the court held that a member may introduce extrinsic evidence as to the actual purpose of the LLC.  For LLC lawyers, Peter’s post raises the difficult question whether they should include the above standard purpose in operating agreements they draft for their LLC formation clients.

Here’s the link:  http://www.nybusinessdivorce.com/2017/08/articles/llcs/llc-agreement-purposeless-purpose-clause/

TEXAS SHOOT-OUT PROVISIONS

By , July 5, 2017 4:57 pm

Texas shoot-out provisions, also known as “shotgun” provisions, are very common in the operating agreements of multi-member LLCs, but they are often inappropriate.  Under the link below, in a post by Peter Mahler, is the best short discussion of these provisions I’ve ever read.

Aim Carefully Before Pulling Trigger on Shotgun Buy-Sell Agreement

AMENDING LLC OPERATING AGREEMENTS

By , June 1, 2017 2:23 pm

Under the link below is another fine post by Peter Mahler about an issue that, in one form or another, often arises in LLC practice—namely, an issue about the terms governing the amendment of an operating agreement.

Here’s the link:

http://www.nybusinessdivorce.com/2017/05/articles/llcs/delaware-ruling-highlights-difference-new-york-amending-llc-agreements/

FORUM SELECTION CLAUSE IN LLC OPERATING AGREEMENT

By , April 11, 2017 3:14 pm

LLC operating agreements for multi-member LLCs often contain forum selection clauses, and these clauses sometimes involve carve-outs. All such clauses must be carefully drafted. The post under the link below deals with an LLC operating agreement’s forum-selection clause and carve-out, but the carve-out wasn’t explicit enough and thus was held to be ineffective. The lesson of the case is: Make your forum-selection carve-outs as explicit as possible as to what you want to carve out.

Here’s the link: http://www.lexology.com/library/detail.aspx?g=b6e73d27-dae0-4950-af37-5efba81b056f&l=7TY9XHC

DELAWARE LLCS

By , April 6, 2017 2:15 pm

Set forth below are the citation to an article about Delaware LLC indemnification and advancement provisions and the first paragraph of the article.

Now is the Time to Revisit the Advancement and Indemnification Provisions of Delaware LLC Agreements

By Kenneth A. Gerasimovich, Greenberg Traurig, LLP

Imagine setting off on an exciting venture with a new business partner. You have a great business plan and have formed a new Delaware limited liability company. Your lawyer circulates the draft limited liability company agreement that will govern your relationship with your partner and the operation of the business. You flip immediately to the relevant sections. You are named as a “manager,” you are entitled to the agreed percentage of the profits that are soon to be rolling in and your name is correctly spelled on the schedule of members. Everything looks great. You sign on the dotted line and get to work.

RECENT NY APPELLATE DECISION

By , March 24, 2017 11:46 am

The decision discussed in the post under the link below holds, in essence, that under New York LLC law, a minority member can be bound by a written operating agreement even if the member never did (and never would) sign it.  I’m sure some other states have LLC act provisions generally similarly to the provisions cited by the New York decision.  If you even occasionally represent minority LLC members, you will find the decision sobering and perhaps even shocking.

Here’s the link: http://www.lexology.com/library/detail.aspx?g=6c13dc38-0d60-4959-95af-5046e5f9d33f&l=7TTTF71