Many business owners who are anxious to start a new business venture may quickly form a limited liability company in an attempt to protect themselves from liability. Many such owners, however, in haste to start their business, fail to enter into a comprehensive operating agreement (if one is entered into at all). If these business owners later get into a dispute with one another, and their operating agreement (if they have one) is silent as to an issue in dispute, statutory “gap fillers” come in to fill the gaps in the members’ agreement. This article will discuss a few of the many gap fillers that may apply to LLCs.
In regards to management, the gap fillers provide that LLCs are managed by its members (i.e., its owners). In order to be manager managed, on the other hand, there must be a provision in the LLC’s articles of organization or operating agreement providing for a manager managed LLC. This is significant because in manager managed LLCs, the owners who are not managers have no fiduciary duties to the LLC or its other owners solely by reason of being a member of the LLC.
The gap fillers provide that voting shall be one vote per member (for member managed LLCs) or one vote per manager (for manager managed LLCs) and that generally, a majority of the members or managers is needed to decide any matter about the business and affairs of the LLC. The gap fillers further provide that some matters require unanimous consent/vote of the members. These consist of the dissolution of the LLC, a merger of the LLC, the sale, exchange, lease, or other transfer of all or substantially all of the assets of the LLC, the admission of new members to the LLC, an amendment to the articles of organization or operating agreement, actions to reduce or eliminate an obligation to make a capital contribution, actions to approve distributions before dissolution, and an action to continue an LLC.
The statutory gap fillers for LLCs also include specific requirements for member and manager meetings. For example, two days notice of any meeting is required, manager meetings may be called by any manager, member meetings may be called by at least twenty-five percent of the members, a majority of the managers for a manager meeting (and a majority of the members for a member meeting) constitutes a quorum, and if a quorum is present, the act of a majority is needed to take action on any matter where a vote is required.
It should be reiterated, however, that generally, these gap fillers only apply unless otherwise agreed by the members/managers in the LLC’s articles of organization or an operating agreement.
This article is not intended to establish an attorney-client relationship and is not intended to confer legal advice. No attorney-client relationship should be inferred in the absence of a written and executed engagement agreement that expressly indicates the creation of an attorney-client relationship.
Written by: Heather Wagner