Forming an LLC: Where is the Operating Agreement?

You've planned. You've saved. You've begged. You've borrowed. You've mortgaged your liver, checked your gut, and dove, perhaps stumbled, into the life of an entrepreneur. You have the business entity receipt from the Secretary of State and the bags under your eyes to prove it. LLC's are excellent business entities because of the flexibility, protection and relatively low financial bar to entry they present to their members/ managers. You know this already. Remember, you've planned.

You know there is a signed copy of an operating agreement somewhere around the office. You also know you've come far. You and the other members of the LLC have gone from a strict diet of peanut butter and jelly sandwiches to catered lunches. You all no longer fear an electric bill. In fact, things are growing. Money is coming in and going out, and while you haven't said much to the members of the LLC, you are certain everyone is on the same page.

But, have you ever stopped to wonder if any of your actions exceed the scope of your authority? Do you know your fiduciary duties? Do you know the scope of your agency? What does that operating agreement say about fiduciary duties, the scope of your authority, day to day operation, special functions which require consent, liability, calling meetings...where in god's name is that operating agreement? You really should hire janitorial service...do you have the authority to do that?

In the rush to create your business, you may have chosen a boilerplate operating agreement, and perhaps it's time to take another look at the governing documents of the LLC and any applicable statutes and case law to ascertain how all of the moving parts of the law work for you.

Oregon's Limited Liability Company Act includes the duties of loyalty, care, and good faith and fair dealing. The duty of loyalty includes the duty to "refrain from dealing with the limited liability company in a manner adverse to the limited liability company and to refrain from representing a person with an interest adverse to the limited liability company." ORS 63,155(2)(b). The duty of care includes "refraining from engaging in grossly negligent or reckless conduct, intentional misconduct or a knowing violation of law." ORS 63.155(3). Finally, managers are obligated to conduct themselves, vis a vis the members, in a manner "consistent with the obligation of good faith and fair dealing." ORS 63.155(4). None of these duties can be completely eliminated by agreement, and they can only be limited in carefully circumscribed ways. See ORS 63.155(10). Any waiver or lessening of the aforementioned duties need to be specific. Don't think the general waiver in your boiler plate operating agreement will hold up. There is case law out there to the contrary. You've built a successful business. Let's see what the law can do to help you stay successful.

Clear communication from the start is the best way to prevent litigation. Allow me to sit down with you and your team, and let's talk about operating agreements, fiduciary duties, expectations, liabilities, the duty of care, the duty of loyalty, the duty of good faith and fair dealing, withdrawing as a member, expulsion of a member, your needs and goals. Are we simply looking to make sure everyone is on the same page, or do we need to coral a rogue member/manager who is running the LLC like a private piggy bank? Or, have absentee members suddenly decided they want to be involved in the empire you've built, and you need to know how to keep them from derailing the prosperity you've created?

Call me, and we will sort your LLC issues out. But first, clean the place up and find your operating agreement.

#operatingagreement #OregonLLC #entityformation #membermanagedllc #managermanagedllc #goodfaith #dutyofloyalty #fiduciaryduty #dutyofcare #fiducairyduty #expulsionofamember #businessformation