The Ties That Bind: LLC Operating Agreements as Binding Commitments

20 Pages Posted: 24 Jun 2015 Last revised: 17 Jan 2016

Date Written: January 16, 2016

Abstract

This essay, written in honor and memory of Professor Alan R. Bromberg as part of a symposium issue of the Southern Methodist University Law Review, is designed to provide preliminary answers to two questions. First: is a limited liability company (“LLC”) operating agreement (now known under Delaware law and in certain other circles as a limited liability company agreement) a contract? And second: should we care either way? These questions arise out of, among other things, a recent bankruptcy court case, In re Denman, 513 B.R. 720, 725 (Bankr. W.D. Tenn. 2014).

The bottom line? An operating agreement may or may not be a common law contract. But that legal categorization may not matter for purposes of simple legal conclusions regarding the force and effect of operating agreements. A state’s LLC law may provide that LLCs are contracts or are to be treated as contracts in general or for specific purposes and may establish the circumstances in which operating agreements are valid, binding, and enforceable. However, in the absence of an applicable statute, the legal conclusion that an operating agreement is or is not a common law contract may matter in legal contexts that depend on the common law of contracts for their rules. In either case, the bar may want to participate in clarifying the status of operating agreements as binding commitments.

Keywords: limited liability company, LLC, operation agreement, limited liability company agreement, contract

JEL Classification: K12, K20, K22, K29, L14

Suggested Citation

Heminway, Joan MacLeod, The Ties That Bind: LLC Operating Agreements as Binding Commitments (January 16, 2016). 68 SMU L. Rev. 811 (2015); University of Tennessee Legal Studies Research Paper No. 279. Available at SSRN: https://ssrn.com/abstract=2622248

Joan MacLeod Heminway (Contact Author)

University of Tennessee College of Law ( email )

1505 West Cumberland Avenue
Knoxville, TN 37996
United States
865-974-3813 (Phone)
865-974-0681 (Fax)

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