Operating Agreements

Members of a Limited Liability Company (“LLC”) or Professional Limited Liability Company (“PLLC”) are required to adopt a written Operating Agreement before, at the time of, or within ninety days after, the filing of the Articles of Organization. Operating Agreement terms are flexible and may relate to (1) the business of the LLC or PLLC, (2) the conduct of its affairs, and (3) the rights, powers, preferences, limitations or responsibilities of its members, managers, employees, and agents. The Operating Agreement may contain terms consistent with the Limited Liability Company Law and the LLC’s Articles of Organization.

The Limited Liability Company Law imposes few restrictions or limitations on how the business of the LLC is to be conducted and therefore allows the organizers to dictate how the business of the LLC is to be conducted in the Operating Agreement. The Limited Liability Company Law provides default rules for operating provisions relating to certain operational concerns, such as management, voting, profit sharing and distributions, as well as events of dissolution, in the absence of a contrary provision in the Operating Agreement

Limited Liability Company Law provides that neither a member, manager, or agent of a limited liability company is liable for any debts, obligations or liabilities of the limited liability company or each other, whether arising in tort, contract or otherwise, solely by reason of being such member, manager or agent or acting (or omitting to act) in such capacities or participating (as an employee, consultant, contractor or otherwise) in the conduct of the business of the limited liability company. (See New York Limited Liability Company Law Section 609)

The Operating Agreement may set forth a provision eliminating or limiting the personal liability of the managers or members of the LLC for damages for any breach of duty in such capacity. However liability cannot be eliminated or limited if the breach was in bad faith or involved intentional misconduct, a knowing violation of law, or the member or manager personally gained a financial profit or other advantage to which they were not legally entitled. A member or manager can be held personally liable for guaranteeing a debt of the LLC, providing collateral for an obligation of the LLC, lending and borrowing transactions of the LLC. (See New York Limited Liability Law Section 611.)

The Limited Liability Company Law does not contain a default rule for the expulsion of members, so any rules for expelling members must be set forth in the Operating Agreement. Furthermore, unless provided for in an Operating Agreement, a member may not withdraw from the LLC prior to its dissolution. An Operating Agreement may permit such withdraw and also provide for the treatment of the member’s interest. An Operating Agreement may fix a value or valuation formula for the member’s interest upon withdrawal.

For more information on Operating Agreements, see New York Limited Liability Company Law Section 417. Please feel free to contact Law Offices of Robert G. Bruechert if you have any questions – 631-691-2600.