LLC Concepts Recently Learned

[Eric Williams]

I thought I would share some new concepts I learned.

LLC as a Contractual Arrangement

So numerous cases have cited LLCs as "creatures of contract." One case described that contract as occurring between the members, the managers, and the LLC. Clary v. Borrell.

Furthermore, this contract between members, sometimes referred to as an operating agreement, can override the default rules provided by default statutory regimes. Conversely, in both Subchapter K and RULLCA there is reference to conformance to state statutory schemes where there is no valid agreement otherwise.

Thus, a key benefit of an operating agreement is a novel network of rights and obligations between parties, one that would be more suitable than under default schemes.

Operating Agreement as Risk Reduction

I've seen plenty of people form partnerships without a written or oral agreement as to the rights and obligations to the entity and other owners.

But keep in mind operating agreements establish consensual relationships, validate them as binding, and dictate when they are enforceable by one party against another.

Further these operating agreements can be created without reference, orally, implied, or any combination. It may be wise for both parties to secure their understanding in writing, and mutually assent to any changes thereafter in writing as well. You're just looking out for each other.

This Quote

"The State, granting to individuals the privilege of limiting their individual liabilities for business debts by forming themselves into an entity separate and distinct from the person who owns it, demands in turn that the entity take a prescribed form and conduct itself, procedurally, according to fixed rules." From the Benintendi case.