Operating Agreements from the Minority Perspective

Operating Agreements from the Minority Perspective 

This Thursday morning at the Annual Meeting of the ABA Section of Business Law, I will be moderating a program on operating agreements from the minority perspective. The formal name of the program is Operating Agreements from the Minority Perspective: Rosencrantz and Guildenstern are Dead. With me on the panel will be two leading authorities on these topics, namely Professor Robert Thompson of the Georgetown Law Center and Professor Jim Wheaton of the Boston University Law Startup Law Clinic.

As has been observed by the Delaware Chancery Court, typically the rights of a member in an LLC begin and end with the operating agreement. As between those members in the minority versus those in the majority, the allocation of rights and obligations in the operating agreement is typically zero-sum. The various LLC Acts utilize any number of rules allocating control as to a particular action (e.g., approval of an amendment to the operating agreement, approval of an organic transaction such as a merger) to either the majority owner, a super-majority or all of the members. These rules are typically modified in operating agreements.

Our program will review any number of issues and items that should be scrutinized by the minority member (and their attorney) to understand what control is being granted the majority owners versus what level of control is held back by the minority. Flipping over that coin, these same issues should be on the radar screen of the majority who wants to exercise control so that they can confirm that the operating agreement affords them that control.