As I have repeatedly stated in previous blog posts, the Limited Liability Company’s (“LLC”) Operating Agreement is the first place to look for the “deal” amongst the members.  LLCs are generally governed by contract.  The contract that controls under most circumstances is the Operating Agreement.   The New Jersey Revised Uniform Limited Liability Company Act (“Act”) defines the term “Operating Agreement” very broadly.   The Act defines “Operating Agreement,” to mean operating agreement even if the members do not use the term “Operating Agreement” in the written document. Moreover, the Act does not require that there be a formal written Operating Agreement at all. The Act allows the use of explicit, oral and/or implied (or a combination of them all) to define the rights of the parties.

Hence, under the Act, if the members of an LLC admit another member, treat her as a member but don’t amend the written Operating Agreement to treat the new person as formal member the law will find that she is a member. That is because the course of conduct – treating her as a member will result in her being added as a member.    This, of course, allows Courts to entertain extrinsic evidence such as course of dealing and course of performance to determine the rights, obligations and duties of the members.  It will give equitable courts greater discretion in formulating fair and equitable results when adjudicating disputes amongst members of an LLC.

Scott Unger is a Shareholder in Stark & Stark’s Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.