An Operating Agreement is the contract that governs the conduct and operation of a Limited Liability Company (LLC) and its member owners. When an LLC’s members have not entered into a valid Operating Agreement, or where the Operating Agreement fails to address key governance issues, the Revised Uniform Limited Liability Company Act (RULLCA) will apply. RULLCA became effective and governs all LLCs March 1, 2014. In the absence of an effective agreement, the RULLCA, as opposed to the Members, will be the source of important decision making. Unfortunately, the decision making framework of RULLCA may be in contrast to the former LLC Act and may ultimately alter the original intentions of the business owners.
RULLCA replaced the Limited Liability Company Act and altered governing laws on the rights and responsibilities of LLCs and their members. Members’ handshake deals and oral agreements may no longer provide them with the protections intended. Since it is uncertain how Courts will interpret and implement RULLCA, LLCs can guard against the uncertainty and retain the power to govern their operations by entering into or revising aging or outdated Operating Agreement.
Understanding what terms should be included in the Operating Agreement is imperative to the success and stability of any business. Without an Operating Agreement that clearly sets forth corporate governance, members may be restrained from operating in the manner originally intended. A thoroughly drafted Operating Agreement can yield success and avoid disaster and costly litigation.
Contact Frier Levitt today for assistance in reviewing or drafting a proper Operating Agreement.
