No Formal Operating Agreement

Frequently members (i.e. the owners) of a limited liability company (LLC) do not enter into a formal operating agreement (the equivalent of the partnership agreement).  If there is no formal operating agreement it does not mean that there are no rules governing the rights and obligations between the LLC members.  An LLC that does not have a formal, written operating agreement will be governed by the default rules under the California Corporations Code (specifically, the Beverly-Killea Limited Liability Company Act) and any informal agreements between the parties (e.g. oral agreements, writings exchanged between the parties, and even in some case the course of dealing between the parties).

According to the default rules under California law, the majority owner (having greater than 50%) generally controls the LLC so long as the interests of the minority owner(s) are protected.  Whatever the respective percentage interests of the owners, all owners are fiduciaries of the LLC and have an obligation of loyalty to the LLC.  Therefore, even if there is no formal agreement between the members, it does not mean that the members do not have obligations to each other and the LLC.

This discussion is not legal advice, a solicitation of you as a client, nor the engaging in the practice of law in any jurisdiction.  This discussion is merely for information/education and should not be relied upon for legal advice by anyone because the facts discussed may be different from your own situation.  If you need legal advice, consult a qualified attorney.  For more information please visit my website at www.palacioslawoffice.com.

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About Elio Palacios, Jr.

Attorney Elio Palacios, Jr., represents individuals, corporations, entrepreneurs, small businesses, startups and early stage businesses, physicians, dentists, and healthcare businesses in corporate, business and commercial transactions and litigation. He also counsels employers and individuals on visa, immigration and naturalization matters. Visit www.PalaciosLawOffice.com to learn more.
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