WHY IT ESPECIALLY DANGEROUS FOR MULTI MEMBER LIMITED LIABILITY COMPANIES, TO OPERATE WITHOUT ADOPTING A WRITTEN OPERATING AGREEMENT?

By John Kiritsis, Esq., CPA, MBA, MS, JD, LL.M

Kiritsis Law Group

212 922 0005

 

It is especially dangerous for multi-member limited liability companies (LLCs) to operate without adopting a written operating agreement for several reasons:

 

Uncertainty about ownership and management: The absence of a written operating agreement can result in uncertainty about ownership and management structure, which can cause disputes among the members.

 

Lack of clarity in decision-making: An operating agreement outlines the decision-making process and voting rights of the members. Without a written agreement, members may have different interpretations of how decisions should be made and disputes may arise.

 

Unclear distribution of profits and losses: An operating agreement spells out the distribution of profits and losses among the members. Without a written agreement, members may have different expectations about how the company's profits and losses will be distributed.

 

Difficulty in transferring ownership: An operating agreement outlines the process for transferring ownership and exiting the company. Without a written agreement, it may be difficult for members to sell their ownership interest or transfer it to others.

 

Legal and tax implications: An operating agreement can help ensure that the LLC is compliant with state law and tax regulations. Operating without a written agreement may result in unintended legal and tax consequences.

 

In conclusion, having a written operating agreement is critical for multi-member LLCs as it helps avoid disputes and confusion, and ensures that the company is operating in a manner that is in compliance with state law and tax regulations.

Sources:

New York Business Corporation Law

New York Limited Liability Company

New York General Obligations Law

NYS Office of Professions

U.S. Constitution

 

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