LLCs without Operating Agreements

We realize that there are thousands of small businesses operating as limited liability companies but without a proper operating agreement. Even though it is less than ideal, there is no shame in that, it is the reality for many business owners. We can help you navigate owner disputes even if there is no operating agreement in place. Or we can draft a proper operating agreement to prevent future trouble from happening.

Sadly, as a minority owner, the lack of a proper operating agreement protecting your interests may prove fatal for your investment in the limited liability company. However, it is still worthwhile looking at all of the facts and circumstances of your situation and devising a legal strategy that may get you what you want and deserve. Sometimes majority owners may come to the negotiation table when being faced with the possibility of lawsuits claiming breaches of fiduciary duties or other mismanagement. Even an action to get access to the financial documents of the LLC may signal to the majority owners that it may be advisable to start negotiating a buyout of the minority member or change the internal relationship structures so that everybody can live with it.

If you are a majority owner of a New York limited liability company, not having an operating agreement may actually play out in your favor, because you could just adopt an operating agreement without the consent of the minority members. You have the majority vote with respect to major business decisions. But as soon as there is internal conflict, we advise against acting impulsively or without legal counsel. Each situation requires careful consideration and we highly recommend getting advice from us before engaging in any kind of tactics that outmaneuver minority members.

What rules apply to the LLC when there is no operating agreement?  The default rules of the NY LLC law.  The law often states “unless otherwise provided in an operating agreement” and then follows a general rule. So if you don’t have an operating agreement, that is the rule.

See also “What Rules Apply to an LLC without an Operating Agreement