No Operating Agreement Signed Yet After 6 Months?

Started an LLC just over 6 months ago. My husband and myself along with another husband and wife.

Having disagreements on the operating agreement from the beginning. Went to an attorney, who happened to be their (our partners) family friend.

Had our attorney look over it and make our necessary changes. Gave them our changes and never heard anything again.

When we started its written on scratch paper by our accountant, who formed our LLC online through LegalZoom.com. The paper stated the LLC is managed by all operating members, meaning our partners wife was not going to work.

Husband 1 has 51%
Husband 2 (my family) has 49%
Than each gave the wives 20% out of their share.

Business has been good, $300,000 billed out since we have started in last week of May 2007.

Here’s the kicker for me. Unfortunately my husband trusts everybody! I DON’T! From day one, even though its written 51/49, everything has been 50/50 when it comes to money being put into the company.

Now, our partner says today “How far you want to take this, I think we need to dump in a lot of money to get this business rolling and I know you don’t have it?”

Then interrupted by a phone call and said we would discuss this later….

I knew it from day one that he would do this. To be honest, he is a bored millionaire and now he doesn’t need us. I’m furious!!!

Guess what I need to know is are we screwed, in every sense, since we never got our operating agreement done??

Trying to find some answers and not be taken advantage of.
– Donna, Nebraska

Answer

There are a couple of ways to answer this, and I’m sure other will comment as well.

Without an operating agreement, your state’s default rules kick in to determine profit and loss sharing.

In most states, profits and losses in an LLC are split proportionally to either ownership interest or capital contributions. This is unlike a partnership, where it’s presumed 50-50 unless there’s a writing to the contrary.

We’re only talking about a 1% difference in your situation, but I think the bigger concern is that you feel you’re getting squeezed out of your company by the fact that your other members are requiring capital contributions in excess of your capacity.

Operating agreements cover issues like ongoing capital contributions, which is one of the reasons you were smart to get a local attorney to draft one for you. Unfortunately, many people are more eager to run their business than sign contracts, and your OA is sitting unsigned.

I would talk to your attorney to determine your state’s default rules and see if you’re required to make additional capital contributions, and if not, what the effect is of your partner making additional contributions (does their ownership interest increase, or do they merely have first right to withdraw their additional capital contributions before you can draw profits?)

Eventually I’m going to create a new section on this site summarizing the default rules by state, as these become very important when dealing with partners and non-existent operating agreements (if you’re operating a single-member LLC, you can simply change your rules along the way by signing a new agreement with yourself).

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