Oral LLC Agreements and other Bad Ideas

At the New York Business Divorce Blog, Peter Mahler has an interesting post about recent New York case law interpreting the implied/oral LLC Agreement of a Delaware limited liability company.  As Mahler notes, New York (among several other states) requires that an LLC Agreement be in writing.  Both the Delaware Limited Liability Company Act and the Revised Uniform Limited Liability Company Act permit an LLC Agreement to be written, oral, or implied.[1]  Mahler’s post includes analysis from the late Larry Ribstein and others discussing the pros and cons of permitting unwritten LLC Agreements, all of which is worthy of attention.

Reasonable people can come to different conclusions as to whether the statute itself ought to ban oral LLC Agreements (virtually all jurisdictions have a long body of common law relating to the burdens and standards of proof for oral contracts) and some may disagree with Mahler's preference for New York's requirement of a written LLC Agreement.  Those of our readers who watched my interview with Family BusinessCast are aware that having an unwritten operating agreement is something I and my colleagues (from a best practices standpoint) strongly discourage, regardless of the applicable statute.

 

[1] E.g., 6 Del. C.  § 18-101(7) (permitting “any agreement ... written, oral or implied, of the member or members as to the affairs of a limited liability company and the conduct of its business”) and RULLCA § 102(13); compare, e.g., Section 417 of the New York Limited Liability Company Law (“Subject to the provisions of this chapter, the members of  a  limited  liability  company  shall  adopt  a written   operating   agreement   that   contains   any  provisions  not inconsistent with law or its articles of organization relating  to  (i) the  business  of the limited liability company, (ii) the conduct of its affairs and  (iii)  the  rights,  powers,  preferences,  limitations  or responsibilities  of  its members, managers, employees or agents, as the case may be”).

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