Operating Agreement Parties

Limited liability companies have quickly become the preferred entity in California due to their flexible management structure and effective liability protection. California`s revised Liability Company Act, which went into effect on January 1, 2014, made some substantial changes to california`s LLC. As I have stated here, these revisions should motivate LLC officers and members to review and possibly amend their existing corporate agreements to ensure that the new law does not inadvertently alter the management structure or the rights and obligations of members and officers of what was originally intended by the parties. However, as we all know, just because something is permissible does not mean it is advisable. This is because the lack of preparation and execution of a full written LLC corporate agreement, which accurately and comprehensively documents and defines the relationship between the members of an LLC, can lead to unpleasant, time-consuming, and costly conflicts. The practical implications of this outcome are illustrated by a decision delivered yesterday in Delaware by Vice Chancellor J. Travis Laster at Seaport Village Ltd. v. Seaport Village Operating Company, LLC, et al.C.A.

No. 8841-VCL (September 24, 2014). In this case, the question was whether an LLC could enforce a lawyer`s fees in its corporate agreement. The defendant`s only defense was that LLC had not signed the company agreement. Vice Chancellor Laster noted that Section 18-101(7) of the Delaware Limited Liability Company Act provides that „[a] limited liability company is bound by its limited liability partnership agreement, whether or not the limited liability company executes the limited liability company agreement.“ Contracts in Delaware, as in almost every state, including California, are subject to the „fraud law.“ This doctrine aims to prevent fraudulent contracts by limiting the applicability of certain types of un written or oral agreements. One of these limits applies to contracts that „must not be harvested within one year of their production“. These contracts require the written form and must be signed by the party against whom they are to be applied. Therefore, a court would not require a five-year oral work contact, since, under its conditions, it could not be made within one year. Regardless of the status of your creation, make sure that what your company agreement says (and doesn`t say) accurately reflects the transaction of the parties….