LLC Member Obligations in an LLC Operating Agreement

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These days, LLCs are often founded around a brilliant idea which requires a lot of development, creation and “sweat equity.”  As a consequence, it is a good idea to include certain obligations of the LLC members in the LLC Operating Agreement.

Confidentiality

Each member should be obliged to keep all LLC business confidential.

Non- Competition

Members should be restricted from competing with the business of the LLC or soliciting employees, vendors or customers away from the LLC to another business venture.  Note though, that restrictive covenants like non compete provisions and non solicitation provisions have to be reasonable to be enforceable in court.

Intellectual Property

If the LLC members are creating intellectual property on behalf of the LLC (software, designs, innovative methods of doing anything), the LLC Operating Agreement must set forth that all such intellectual property has to be immediately assigned to the LLC and is not and will not be the property of the individual LLC members.

Participation in the LLC Business

The LLC Operating Agreement could  set forth that certain members have distinct responsibilities with respect to the operation of the LLC.  For example, it could provide that A is responsible for research and development and B for sales and marketing.  If the agreement was silent, you could potentially have the situation that A works 24 hours a day to make things happen and B sits around and does nothing.  Without obligations in the LLC Operating Agreement, A could do nothing about B’s inactivity.

 

Related Posts:
All you Need to Know About:  The LLC Operating Agreement
Ownership, Contributions and Distributions of Profit in an LLC Operating Agreement
Management Provisions in an LLC Operating Agreement
Buy Sell Provisions in an LLC Operating Agreement

**This post is for informational purposes only.  For actual legal advice contact a business lawyer, business attorney or business law firm**

About Imke Ratschko


Imke Ratschko is a New York Attorney helping small businesses, business owners and entrepreneurs with all things "Small Business Law," such as litigation, contracts, business owner disputes, shareholder and operating agreements, sale or purchase of a business, investors, and starting a business. You can reach her at 212.253.1027.

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