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.
Category: Operating agreements
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
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:
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.
GOOD FAITH VS. BOARD DISCRETION IN OPERATING AGREEMENTS; DEADLINE PROVISIONS IN OPERATING AGREEMENTS
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.
LLC operating agreements often need to include non-competition provision applicable to managers or members, and LLC lawyers need to have at least a basic understanding of non-competition law in order to ensure that when persons become managers or members of LLCs these lawyers are forming, this won’t create problems under non-compete agreements of these persons with third parties. A good primer on non-compete and related law may be found in the blog post under the link set forth above. The post is entitled “Navigating Non-Compete and Other Key Talent Issues: A Primer for Employers.”
The post under the link below discusses the Obeid v. Hogan decision by the Delaware Court of Chancery, which I’ve already briefly summarized in a post to this listserv a couple of weeks ago. However, the post below discusses in substantial detail the specific issue of manager delegations of their duties to non-managers as addressed in that decision—an important LLC operating agreement drafting issue that I did not address in my post. I urge you to read the post below if either (i) you draft LLC agreements under the Delaware Limited Liability Company Act or (ii) you do or may at some point draft management delegation provisions under non-Delaware LLC acts.
Here is the link:
The post under the link below is yet a further post by Peter emphasizing (i) the value of clearly drafted LLC operating agreements and (ii) the disasters that can arise if an LLC has no operating agreement. The first of the three cases addressed in Peter’s post also provides a good summary of Delaware rules of contract interpretation applicable to operating agreements. These rules may well be influential in non-Delaware jurisdictions for this purpose.
The excellent new blawg post under the link below demonstrates (i) the absolute need that a two-member LLC, even when the members are brothers, have a comprehensive written operating agreement; (ii) that under that agreement, the less active brother in the LLC have the right to monitor all that happens in the LLC; and (iii) that he exercise that right on a regular basis.
Here’s the link:
The following link is to an excellent new post by Peter Mahler of Farrell Fritz about the operating agreement clauses noted above: