Tuesday, October 14, 2014
It's Too Long
It's Too Long
This is a common lament of LLC operating agreements; that they are "too long."
This lament has no legitimacy.
The LLC is an organizational form of almost unlimited flexibility in which the agreement of the parties is paramount.
In light of the primacy of the parties' agreement, LLC acts are typically skeletal as to default rules that apply absent the parties coming to agreement as to that point. Furthermore, there are an almost unlimited number of matters upon which the LLC act provides no default rule. For example, the Kentucky LLC act does not tell you:
· The minimum notice for a meeting of the members;
· What is a quorum of the members; or
· What is required in the notice of a meeting of the members.
If you want to know what are those rules they have to be written out in the operating agreement. Don't write them out and you have both a shorter operating agreement and no clarity as to these three points.
Most LLC's are taxed as partnerships. That tax treatment requires that the operating agreement recite a significant number of rules.
Operating agreements embody the rules that govern that particular LLC. Essentially they resolve certain disputes before they have a chance to arise.
In the movie Amadeus, the Emperor Joseph II objects to a Mozart opera on the basis of "too many notes." As if he was in the position to judge the composition of a Mozart opera.
A properly written operating agreement is as long as it needs to be.