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Is Your Limited Liability Operating Agreement Ready For a Dispute?

Your operating agreement needs to be prepared for a dispute or dissolution.Is your limited liability operating agreement adequate? Many online operating agreement forms that promise to save money when setting up an LLC are not adequate. Some limited liability companies do not even have operating agreements. Does your company have one? What if there is a dispute between two members of the LLC? Do you know what to do?

The wrong way to find out if your operating agreement is adequate occurs when you discover that it does not have a provision to settle disputes between members. An irreconcilable disagreement between or among the members is a deadlock. When members do not agree with one another there will be issues regarding the running of the LLC, which will affect business.

The best-case scenario is to review your operating agreement with an attorney to make sure that there is a provision to handle disputes among members before a dispute arises. Doing this when there is a level playing field among/between members makes it easier for members to agree. It also allows for each member to have an equal say in the provisions of the operating agreement before emotions get involved.

Without a Proper Operating Agreement, Brace For Dissolution

If you do not review your operating agreement with an attorney and later find out there is no provision in the operating agreement after a deadlock issue has occurred, your options become very limited. One option is to hire a mediator. The worst-case scenario is filing for judicial dissolution with the Court. Judicial dissolution occurs when the Court must intervene between the members of the business due to disagreements that cannot be reconciled. Code of Virginia §13.1-1047 requires that the parties show that “it is not reasonably practicable to carry on the business in conformity with the articles of organization and any operating agreement.” Apart from how the company will be affected, this court action will be expensive and time-consuming.

Having your operating agreement drafted by an attorney, or reviewed by an attorney when the business is formed, can save time and money in the long run. It can also provide an orderly method of continuing the business. Once an issue between members arises, with the attendant tempers and emotions it can be difficult to reconcile differences. Planning ahead for issues between members in your limited liability company is the most effective way to run the business.