It’s fairly easy to start up and to organize your limited liability company (LLC) with the filing of articles of organization with the Secretary of State’s office. Many clients file the articles themselves. The LLC has become one of the most popular forms of business entity among new businesses being formed.
Owners of an LLC are called members. Members may include individuals, corporations, other LLCs, and even foreign entities. There is no maximum number of members. Most states, including North Carolina, also permit “single-member” LLCs, those having only one owner.
If your LLC has more than one member or owner, because of the potential for disputes and significant potential liabilities, and serious legal and tax consequences, we advise our clients to think ahead, and to write and to agree on a clear, consistent and unambiguous operating agreement.
It’s especially important to carefully review and to have the members agree on the wording of the operating agreement about how major decisions of the LLC get made. The members should discuss and agree on what the voting requirements are or should be for making such decisions by the LLC’s members. Do the members always want unanimous decisions, or will a majority vote be sufficient for your management decisions?
In a recent North Carolina Business Court decision, the Business Court ruled that two of the three members of the LLC may vote and effectively deprive the third member from decision-making authority. The Court considered the LLC operating agreement provision that permits amendments by a majority in interest. In this case, the majority in interest (two of the three members, each of whom had a 1/3 membership interest in the LLC) may agree and vote to modify the provision requiring unanimous member consents for management decisions, so that such decisions may be made without unanimous consent, effectively excluding the vote of the third member. The Business Court ruled that the majority in interest owe no fiduciary duty to the third member, and owe no duty to act in good faith in their business relationship with the third member.
These questions and other issues unique to your LLC’s business and your business plan should be thoroughly discussed and agreed on by the members who are bringing their capital, their talents and labor to the new business, and then memorialized in a writing prepared by your lawyer, along with appropriate tax and accounting- related provisions from your accountant and tax advisor.
Ellinger Carr is a business law and commercial real estate law firm based in Raleigh, North Carolina. Ellinger Carr lawyers are experienced and knowledgeable counselors, transaction leaders and business problem solvers, admitted to practice in North Carolina, South Carolina, Florida, Louisiana and New York. For assistance in commercial real estate and corporate and business development matters, call 919-785-9998 or email Susan Ellinger at , Steven Carr at , Heather McDowell at , and Sarah Goodin at .