The Operating Agreement I: Parties, Formation and Interpretation

Scope of the chapter. The operating agreement is the principal source of the rights and obligations of the members of an LLC, and the principal document a practitioner drafts, reviews or litigates in an LLC matter. This chapter and the next examine it. This chapter addresses what the agreement is, who is bound by it, how it comes into existence, how persons become members under it and how courts interpret it. It closes with the structure of a complete agreement. Chapter 8 addresses the amendment of the agreement, its enforcement and its relation to other documents. The limits that the statutes place on what an agreement may say are examined in Chapter 3, and the implied covenant of good faith and fair dealing in ch. 3 ¶ 350.

Terminology. The statutes use different names for the same document. The Delaware act calls it the "limited liability company agreement," while acknowledging that it may be "referred to as a limited liability company agreement, operating agreement or otherwise." Del. Code Ann. tit. 6, § 18-101(9). The uniform act calls it the "operating agreement." Rev. Unif. Ltd. Liab. Co. Act § 102(13) (2013). Texas uses "company agreement" (see supra ¶ 250.03). This treatise uses "operating agreement" generally and "LLC agreement" when discussing the Delaware act. The terms are interchangeable, and nothing turns on the label the parties choose.

The agreement as the map of the deal. The official comment to the uniform act describes the operating agreement as "the map to the parties' deal" and observes that "any claim by a member of managerial misconduct must be assessed first under the relevant terms of the operating agreement." Rev. Unif. Ltd. Liab. Co. Act § 105 cmt. (2013). The Delaware courts reach the same point by a different route. The Court of Chancery has described the Delaware act as "an enabling statute whose primary function is to fill gaps, if any, in a limited liability company agreement." Achaian, Inc. v. Leemon Family LLC, 25 A.3d 800 (Del. Ch. 2011). Under either statute, the analysis of an LLC question begins with the agreement (see supra ch. 3 ¶ 320.01).

Organization. The chapter proceeds in nine parts:

1. the definition of the agreement and the forms it may take (¶ 710);
2. the parties to the agreement and the persons bound by it (¶ 720);
3. pre-formation agreements and the timing of the agreement's effect (¶ 730);
4. the admission of members (¶ 740);
5. the short-form agreement and its risks (¶ 750);
6. the principles of interpretation (¶ 760);
7. extrinsic evidence, course of dealing and implied terms (¶ 770);
8. side letters and the relation of the agreement to the certificate of formation (¶ 780); and
9. the structure of a complete agreement (¶ 790).