¶ 1801
Overview
Scope of the chapter. An LLC acts only through individuals. Every contract it signs, every deed it delivers and every loan it takes is the act of a person who claims to act on its behalf. This chapter examines when the acts of members, managers, officers and other agents bind the LLC; when they do not; what the LLC, its members and third parties can do to make the answer certain; and who bears the loss when an agent exceeds the authority the LLC conferred. The allocation of management power among members and managers is examined infra ch. 17, and officers and boards infra ch. 19. This chapter concerns the external question: the power to bind the LLC in dealings with others.
Two sources of law. Questions of authority are governed by two bodies of law. The first is the LLC statute, which may confer authority by position, deny it, or provide a mechanism by which authority may be stated in a public filing. The second is the general law of agency, which applies to an LLC as it applies to any other principal. The relation between the two differs sharply between the principal statutes. The Delaware act confers authority on every member and manager by default. The uniform act confers no authority on members by reason of their status and leaves the question entirely to agency law. Most other statutes fall between the two, and some, like the former Utah statute discussed in ¶ 1830.06, contain special rules for particular kinds of instruments.
Why the question matters. Authority disputes arise in three recurring settings. In the first, the LLC seeks to avoid a transaction signed by a member or manager who lacked authority under the operating agreement. In the second, a third party seeks to enforce a transaction against an LLC that disclaims it. In the third, the person who signed is sued personally, either because the principal was not disclosed or because the person warranted an authority the person did not have. The same facts may give rise to all three disputes at once, and the operating agreement, the public record, the course of dealing and the documents exchanged at closing will each bear on the outcome.
Organization. The chapter proceeds in nine parts: the statutory framework (¶ 1810); actual authority (¶ 1820); apparent authority (¶ 1830); statements of authority and denial (¶ 1840); knowledge and notice (¶ 1850); extraordinary acts and member consent (¶ 1860); unauthorized acts, ratification and void acts (¶ 1870); the liability of the LLC and of its agents (¶ 1880); and due diligence and drafting (¶ 1890).