Category: Operating Agreements

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

LLCS AND FREEZE-OUT MERGERS

By , February 14, 2017 2:50 pm

Under the link below is another excellent new post about a recent New York case involving an LLC merger freezing out a minority member.  The decision in the case was based on the plain language of the governing operating agreement, and, in particular, on the fact that the operating agreement permitted a majority of the members to approve transfers of membership interests but without any requirement that the consenting members be disinterested.  The lesson of the case for LLC lawyers in drafting operating agreements is always to consider whether member consent requirements should make clear that consenting members must be disinterested.

Here’s the link:  http://www.lexology.com/library/detail.aspx?g=b8e8e170-0340-4cdd-a124-b54ae930b1ca&l=7T95V6U

INDEMNIFICIATION AND ADVANCEMENT PROVISIONS IN DELAWARE LLC AGREEMENTS

By , December 14, 2016 1:19 pm

The post under the link below concerns indemnification and advancement provisions in Delaware LLC agreements under the recent Delaware Court of Chancery decision in Harrison v. Quivus Systems, C.A. 12084-VCMR.   In my view, the court’s rationale in the Harrison case is likely to be persuasive under the LLC acts of most or all non-Delaware states.

Here’s the link:

http://www.lexology.com/library/detail.aspx?g=7974faa7-9169-4972-837f-0fe5438a74b0&l=7SQ0KAN

DELAWARE CASE ABOUT ADVANCEMENTS

By , November 2, 2016 4:45 pm

Any operating agreement for a relatively sophisticated or substantial business should contain a provision providing for the advancement of litigation expenses to managers who are sued because of their activities or omissions as managers.  The post under the link below discusses a recent Delaware case about contested advancement provisions in the operating agreement of a Delaware LLC.

Here’s the link:  http://www.lexology.com/library/detail.aspx?g=3f31af23-f21e-4968-9787-dbfd113c0428&l=7S9E409

GOOD FAITH VS. BOARD DISCRETION IN OPERATING AGREEMENTS; DEADLINE PROVISIONS IN OPERATING AGREEMENTS

By , October 5, 2016 2:09 pm

Operating agreements and related membership repurchase agreements often contain both (i) management discretion provisions and (ii) provisions requiring management to act in good faith.  And of course the contractual law of most or all jurisdictions imposes on LLC members and managers an implied contractual covenant of good faith and fair dealing.  These agreements also often contain provisions imposing deadlines for LLC member and manager procedures.

In the blog post under the link below, Peter Mahler provides a sobering discussion of a recent New York LLC case in which (i) a good faith provision trumps a management discretion provision; and (ii) poor drafting of a deadline provision leads to disaster.

Here is the link:  http://www.nybusinessdivorce.com/2016/08/articles/buyout/good-faith-trumps-sole-discretion-llc-agreements-repurchase-provision/#