Category: Operating agreements

FORUM SELECTION CLAUSE IN LLC OPERATING AGREEMENT

By , April 11, 2017 10:31 am

LLC operating agreements for multi-member LLCs often contain forum selection clauses, and these clauses sometimes involve carve-outs. All such clauses must be carefully drafted. The post under the link below deals with an LLC operating agreement’s forum-selection clause and carve-out, but the carve-out wasn’t explicit enough and thus was held to be ineffective. The lesson of the case is: Make your forum-selection carve-outs as explicit as possible as to what you want to carve out.

Here’s the link: http://www.lexology.com/library/detail.aspx?g=b6e73d27-dae0-4950-af37-5efba81b056f&l=7TY9XHC

DELAWARE LLCS

By , April 6, 2017 9:17 am

Set forth below are the citation to an article about Delaware LLC indemnification and advancement provisions and the first paragraph of the article.

Now is the Time to Revisit the Advancement and Indemnification Provisions of Delaware LLC Agreements

By Kenneth A. Gerasimovich, Greenberg Traurig, LLP

Imagine setting off on an exciting venture with a new business partner. You have a great business plan and have formed a new Delaware limited liability company. Your lawyer circulates the draft limited liability company agreement that will govern your relationship with your partner and the operation of the business. You flip immediately to the relevant sections. You are named as a “manager,” you are entitled to the agreed percentage of the profits that are soon to be rolling in and your name is correctly spelled on the schedule of members. Everything looks great. You sign on the dotted line and get to work.

RECENT NY APPELLATE DECISION

By , March 24, 2017 6:48 am

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.

Here’s the link: http://www.lexology.com/library/detail.aspx?g=6c13dc38-0d60-4959-95af-5046e5f9d33f&l=7TTTF71

LLCS AND FREEZE-OUT MERGERS

By , February 14, 2017 9:53 am

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

INDEMNIFICATION AND ADVANCEMENT PROVISIONS IN DELAWARE LLC AGREEMENTS

By , December 14, 2016 8:22 am

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:

http://www.lexology.com/library/detail.aspx?g=7974faa7-9169-4972-837f-0fe5438a74b0&l=7SQ0KAN

DELAWARE CASE ABOUT ADVANCEMENTS

By , November 2, 2016 11:47 am

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.

Here’s the link:  http://www.lexology.com/library/detail.aspx?g=3f31af23-f21e-4968-9787-dbfd113c0428&l=7S9E409

GOOD FAITH VS. BOARD DISCRETION IN OPERATING AGREEMENTS; DEADLINE PROVISIONS IN OPERATING AGREEMENTS

By , October 5, 2016 9:12 am

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.

Here is the link:  http://www.nybusinessdivorce.com/2016/08/articles/buyout/good-faith-trumps-sole-discretion-llc-agreements-repurchase-provision/#

NON-COMPETES

By , September 1, 2016 9:18 am

http://www.jdsupra.com/legalnews/navigating-non-compete-and-other-key-75446/

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.”

DELEGATIONS OF MANAGER DUTIES TO NON-MANAGERS

By , August 5, 2016 11:15 am

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:

http://www.mnat.com/files/ClientAlerts/MorrisNicholsAlert_RecentCaseAddressesLLCManagersAuthoritytoDelegate_July2016.pdf

NEW BLOG POST BY PETER MAHLER

By , June 1, 2016 10:24 am

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.

Here’s the link:  http://www.nybusinessdivorce.com/2016/05/articles/access-to-books-and-records/llc-case-notes-member-expulsion-withdrawal-llc-purpose/#