As noted in previous IC blog posts, Massachusetts has codified its Limited Liability Company (“LLC”) laws at Mass. Gen. Laws c. 156C (“MA LLC Statute”). In the event individual members of an LLC fail to contemplate and adopt a comprehensive Operating Agreement outlining the LLC and individual members’ rights, responsibilities and operating procedures, standard provisions of the MA LLC Statute control. This post considers just a few of what I will call “default rules” under the MA LLC Statute:
- An LLC shall have the power to make guarantees of the obligations of another person or entity. Mass. Gen. Laws c. 156, §6;
- The certificate of organization or a written operating agreement may eliminate or limit the personal liability of a member or manager for breach of any duty to the LLC. Mass. Gen. Laws c. 156, §8(b);
- An LLC is formed at the time of filing of the initial certificate of organization, or at any later date specified in the certificate of organization. Mass. Gen. Laws c. 156, §12(b);
- Unless otherwise provided in the operating agreement, any person may sign any certificate or amendment thereto, or enter into the operating agreement or amendment thereto by an agent, including an attorney in fact. Mass. Gen. Laws c. 156, §15;
- In connection with the formation of an LLC, a person is admitted as a member of the LLC at the later to occur of (1) the date of formation of the LLC or (2) the time provided in and upon compliance with the operating agreement or, if the operating agreement does not so provide, when the person’s admission is reflected in the records of the LLC. Thereafter, a person is admitted as a member of the LLC at the time provided in and upon compliance with the operating agreement, or, if the operating agreement does not so provide, upon the consent of all members. Mass. Gen. Laws c. 156, §20;
- If an operating agreement does not provide for the voting rights of members, the decision of members who own more than 50 percent of the unreturned contributions to the LLC shall be controlling. Mass. Gen. Laws c. 156, §21(d);
- Unless otherwise provided in the operating agreement, the management of the LLC shall be vested in its members. Without an operating agreement, if an LLC has at least one manager, the manager shall manage and control the LLC and no member shall manage or control the LLC. If an LLC has no manager then the members shall manage and control the LLC. Mass. Gen. Laws c. 156, §24;
- Without an operating agreement, if an LLC has at least one manager then each manager may execute documents and act for the LLC and no member shall execute documents or act for the LLC. If an LLC has no manager then each member may execute documents and act for the LLC. Mass. Gen. Laws c. 156, §24;
- Unless otherwise provided in the operating agreement, a member or manager of an LLC may delegate some or all of such member’s or manager’s rights and powers to execute documents and act for and manage and control the business and affairs of the LLC, including delegating to agents and employees of a member or manager of the LLC, and delegating by a management agreement or another agreement with, or otherwise to, other persons. However, such delegation by a member or manager of an LLC shall not cause the member or manager to cease to be a member or manager, as the case may be, of the LLC. Mass. Gen. Laws c. 156, §24;
- If an operating agreement does not provide for the voting rights of managers, the decision of a majority in number of the managers shall be controlling. Mass. Gen. Laws c. 156, §26(d);
- Except as provided in a written operating agreement, a member is obligated to an LLC to perform any promise to contribute cash or property or to perform services, even if the member is unable to perform because of death, disability or any other reason. Mass. Gen. Laws c. 156, §28(a);
- If the operating agreement does not provide for distributions of cash or other assets, distributions shall be made on the basis of the agreed value of the contributions of each member, as stated in the records of the LLC, to the extent they have been received by the LLC and have not been returned. Mass. Gen. Laws c. 156, §30;
- If an operating agreement does not specify the times at which distributions are to be made, the members or managers, acting pursuant to Sections 21 or 26 of the MA LLC Statute, may determine when the members are entitled to distributions. Mass. Gen. Laws c. 156, §31;
- A resigning member is entitled to receive, within a reasonable time after resignation, the fair value of his or her LLC interest as of the date of resignation, based on his or her right to share in distributions from the LLC. Mass. Gen. Laws c. 156, §32;
- A member may resign as a member of an LLC at the time or upon the occurrence of events specified in the operating agreement and in accordance with the operating agreement. An operating agreement may provide that a member does not have the right to resign, however, regardless of whether it so provides, a member may resign as a member upon not less than six months’ prior written notice to the LLC at its office in the Commonwealth (as set forth in the certificate), and to each other member and each manager at their respective addresses (asset forth on the records of the LLC). Mass. Gen. Laws c. 156, §36;
- An LLC interest is assignable in whole or in part except as provided in the operating agreement. An assignee shall have no right to participate in the management of the business and affairs of the LLC, except upon compliance with any procedure provided for in a written operating agreement or upon the approval of all members other than the assigning member. Mass. Gen. Laws c. 156, §39(a);
- With respect to an LLC formed prior to January 1, 1997, except as provided in a written operating agreement, the death, insanity, retirement, resignation, expulsion, bankruptcy or dissolution of a member, or the occurrence of any other event that terminates the membership of a member in the LLC, dissolves the LLC, unless the LLC is continued either by the consent of all the remaining members within 90 days following the occurrence of such event, or pursuant to the right to continue stated in a written operating agreement. Mass. Gen. Laws c. 156, §43;
- Except as otherwise provided in a written operating agreement, suit on behalf of the LLC may be brought in the name of the LLC by (1) any member or members (even in an LLC with managers) with the consent of members owning more than 50 percent of the unreturned capital contributions to the LLC (exclusive of the interest of any member who has an interest in the outcome of the suit that is adverse to the interest of the LLC); or (2) any manager or managers of the LLC (if the operating agreement vests management of the LLC in one or more managers who are authorized to sue) by the vote of a majority in number of the managers (similarly excluding an interested manager). Mass. Gen. Laws c. 156, §56.
As with most “default” statutory provisions relating to the operations of a private company, where the law allows for customization by agreement, LLC members are strongly advised to carefully consider, modify and draft away and around the “default” MA LLC Statute provisions by creating a formal Operating Agreement. Doing so allows interested parties to specifically tailor company operations and ground rules to the needs of a particular LLC and its members.