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Can you amend an Operating Agreement?

Yes, you can amend an operating agreement.  For New York limited liability companies, Section 417(b) New York Limited Liability Company Law provides that

“The operating agreement of a limited liability company may be amended from time to time as provided therein”.

An LLC operating agreement is a written agreement among the members of an LLC that contains rules regarding the business of the LLC, the conduct of its affairs, and the rights and responsibilities of the members and managers. See Section 417(a) New York Limited Liability Company Law.  How exactly do you amend one?

Amending an Operating Agreement

So you are not stuck with the original operating agreement, you can modify it. To amend an operating agreement, you can have a short document that says something like “Section __ of the Operating Agreement dated __ is hereby amended as follows:___”. OR, you could restate the entire old agreement.  In that case, it would say at the beginning of the new operating agreement that there was an old one and that this new operating agreement restates the old one “in its entirety”. See here on how to amend an agreement in general.

Consent by All Members if Provided in Operating Agreement

As the law says, the amendment has to follow the procedures and rules set forth in the operating agreement for the limited liability company.

So if your operating agreement states something like “This Agreement cannot be amended without the consent of ALL of the members”, the amendment requires the consent of ALL members before it becomes effective.  Actually, all operating agreements should say that.  As a minority member, do not sign an agreement that requires less than unanimous consent to modify the LLC operating agreement.

Consent by Majority if Default Rules Apply

What if the operating agreement does not have a provision that requires consent by all the members?  Well, then the default rules of the New York Limited Liability Company Law apply.   According to those rules, Section(407(c)(3) LLC Law, it is sufficient that a majority of members approved the amendment to the operating agreement.  This means, that if you are a minority member, you have no say in it. This is a pretty stark outcome but has been confirmed by the courts. Shapiro v. Ettenson, 146 A.D.3d 650.   Even the first time adoption of an operating agreement can be proper with only the consent of the majority member.

There are some exceptions.  If any member would be affected by the changes to the operating agreement, because it would increase his/her obligations to make contributions,  alter the allocation of profit and losses,  alter distributions to any member or allow a member to make a contribution…… such an amendment requires the consent of that member. See Section(407(b) LLC Law.

 

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 or by email.