Distinguishing a Written Operating Agreement from a Signed Operating Agreement

Distinguishing a Written Operating Agreement from a Signed Operating Agreement

Under the Kentucky LLC Act, numerous of the default rules may be modified only if done in a written operating agreement. Put another way, while oral and course of conduct operating agreements are permitted under the LLC Act, those agreements are not effective to modify a default rule that the Act requires be modified only by means of a written instrument. There is not, however, a general requirement that a written operating agreement be signed by the members. While there are a few very narrow exceptions to the rule, such as with respect to the obligation to contribute additional capital to the company, a member is bound by the written operating agreement irrespective of whether they have ever signed it. Indeed, they may be bound by an agreement they have never seen.

These rules can become quite important when there is disagreement as to whether the terms of a written operating agreement have ever been approved.

These principles were recently applied in a decision in New York, a state whose LLC Act is in many respects similar to that of Kentucky. Therein, in 223 Sam, LLC v. 223 15th St., LLC, there existed a dispute as to whether a document that was exchanged by email constituted the final agreed upon operating agreement for the company. Peter Mahler, in his blog New York Business Divorce, has reviewed the 223 Sam, LLC decision; HERE IS A LINK to that posting.