September 16, 2016

LLC Operating Without An Operating Agreement And Managing Member Controls Everything

I was told it is illegal in the State of Missouri to operate an LLC without an Operating Agreement. Please enlighten me. An Operating Agreement was never signed by the members. A “draft” was put together but that is where it stopped. To make a long story short, the members are blaming one member for all of the problems of the LLC, however this member is not the managing member of the LLC and has no control over anything.

Also, what can a member of a small LLC do when the managing member refuses to provide requested information such as financials and the member is attempting to sell their share but without information can not. The LLC operates at a loss and it is only at the end of the year when the LLC demands money from the members to pay such things as Taxes.

All members are equal partners – 1/3; 1/3; 1/3.

The LLC was set up to purchase and manage a commercial building.

– Dan, Missouri

Answer

If there is significant money at stake here (or potential liability), you need a lawyer.

As far as it being “illegal” to have an LLC without an operating agreement in Missouri, here is how the statute reads:

      § 347.081 RSMo. Operating agreement, contents — policy statement — enforceability, remedies
      1. The member or members of a limited liability company shall adopt an operating agreement containing such provisions as such member or members may deem appropriate, subject only to the provisions of sections 347.010 to 347.187 and other law.
      The operating agreement may contain any provision, not inconsistent with law, relating to the conduct of the business and affairs of the limited liability company, its rights and powers, and the rights, powers and duties of its members, managers, agents or employees, including…

So, Missouri law does say that an LLC “shall” adopt an operating agreement.

It doesn’t say it needs to be writing.

So, what kind of verbal agreement do the members have?

My guess is that each one has a different recollection of what they agreed to.

You see where this is going?

If there is significant money at stake, resolving this situation could involve large legal fees.

For everyone out there reading this, it is critical that you have a written operating agreement for your LLC.

This is a place where money spent on a lawyer–particularly if there is a lot of money in the company and multiple members–might be well spent.

In either case, the operating agreement is the first thing any lawyer will ask you when it comes time to resolve disputes among the members.

Without a written agreement, we are stuck with “he said, she said”, which are almost always more costly and risky to litigate then when you have written documents to rely on.

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