Monday, February 9, 2009

Oral LLC Operating Agreements

They are like putting the condom halfway on. Why in God's name would anyone do this? The reason oral operating agreements make no sense is that when they are violated it's very, very difficult for the wronged party to prevail. Remember that the plaintiff has the burden of proof in American civil cases. So when you sue the other LLC member for breach of an oral operating agreement, it is your word against his. Without some additional evidence such as course of dealing or emails / correspondence from the defendant acknowledging the terms of the oral agreement, the plaintiff loses for failing to carry his burden of proof.

Are oral operating agreements enforceable at all? To my knowledge, other than in the District of Columbia, oral operating agreements are enforceable; however, certain terms such as the agreement to make capital contributions must be in writing depending on the state. See state survey of LLC law.


Anonymous said...

So tis is def the artistic love all hippy approach to biz... and "we" did it this way... "we" no longer see eye to eye and i want to walk away with out owing anything and peacefully... we have a llc in fl with no operating agreement... just verbal... we did cosign a loan and both names are on the llc... i dont want any money, i dont want anything further to do with the biz, i dont want clients, etc... i just want peacefully no more... just out...lawyers (in my experience) pit people (even the peaceful) against eachother, and at the moment the 2 parties involved ("we") aren't angry, and would like to remain as such... so avoiding anyone whos end impact might be negative is desireable... any advice?

jjray said...

Absent the loan that you cosigned on, it would not be much of a problem for the two of you to sign an agreement whereby your withdraw from the LLC. However, under Florida law one only withdraws from an LLC with it is allowed in the operating agreement.
MedLawPlus Ask A Law Q#235.

The two of your could execute an operating agreement that allows for withdraw as a precursor to you actually withdrawing.

The loan is different matter because, even if you withdraw, you will still be liable as a cosigner. I know you are not found of lawyers but it would be a good idea to have a lawyer review the loan document you signed to see if he / she has any suggestions for limiting your future liability.