Operating Agreements The operating agreement is the most important contract among the members of a Limited Liability Company. Many aspects of the members’ relationship and the Limited Liability Company’s business can be controlled by the operating agreement, which is similar in function to a partnership agreement. Generally, operating agreements are specific to the circumstances of each Limited Liability Company. While operating agreements need not be in writing, and may be oral or implied by conduct, it is almost always advisable to reduce an operating agreement to writing, as it greatly increases the likelihood that the members are acting with a common understanding and minimizes the risk of disputes arising later on. Generally an operating agreement will spell out how the Limited Liability Company’s rules differ from the default rules that would otherwise apply under Minn. Stat. Chapter 322C. Rules that members may wish to change may include: • Acts outside the ordinary course of the Limited Liability Company’s business require the consent of all members. (Minn. Stat. § 322C.0407, subds. 2, 3(4)(iii), 4(16)); • All members have an equal vote and an equal say in management matters, rather than voting rights in proportion to the value of their contributions. (e.g., Minn. Stat. § 322C.0407, subds. 2(2), 4(17)); • Each member has a right to participate equally in current distributions and, upon dissolution, in residual distributions after contributions have been returned. (Minn. Stat. §§ 322C.0404; 322C.0707); • The consent of all members is required to admit a new member (Minn. Stat. § 322C.0401, subd. 4(3)); • The consent of all members is required to: (i) sell, lease, exchange, or otherwise dispose of all, or substantially all, of the Limited Liability Company’s property, with or without the good will, outside the ordinary course of the company’s activities. (Minn. Stat. § 322C.0407, subds. 2, 3(4)(i), 4(16)(i)). Member consent, however, is not required for a grant of a security interest in all or substantially all of the company’s property and assets, whether or not in the usual course of business; nor is member consent required for the transfer of any or all of the company’s property to an organization all the ownership interests of which are owned directly or indirectly by the company through the wholly owned organization.; • The consent of all members is required to amend the operating agreement. (Minn. Stat. § 322C.0407, subds. 2, 3(4)(iv), 4(16)(iii)); • The consent of all members is required to approve a merger, conversion, or domestication. (Minn. Stat. § 322C.0407, subds. 2, 3(4)(iv), 4(16)(ii)). Limited Liability Company members should consult with legal counsel in creating or signing such agreements.
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