LLCs - Read the Contract Before You Sign It

Download or read book LLCs - Read the Contract Before You Sign It written by Herrick K. Lidstone and published by . This book was released on 2018 with total page 7 pages. Available in PDF, EPUB and Kindle. Book excerpt: The limited liability company is the entity du jour in Colorado and elsewhere. According to the Colorado Secretary of State's office, more than 88,000 limited liability companies (“LLCs”) were formed in Colorado in 2017 as compared to fewer than 11,000 corporations, continuing the trend over the past several years. While a corporation is generally a statutory creature with some flexibility under the Colorado Business Corporation Act that can be included in the articles of incorporation, the LLC is a creature of contract and it is unlikely that the default provisions of the Colorado LLC Act would be acceptable to any LLC member who understood them.Where properly drafted, the operating agreement can serve as a contract that waives various duties of the members and managers of the LLC, although in substantially all cases the contractual obligation of good faith and fair dealing remains, subject to the ability (in Colorado) to “prescribe the standards by which the performance of the obligation is to be measured, if such standards are not unreasonable.”Off-the-shelf operating agreements such as are available from various legal services or in treatises do not reflect the special needs and expectations of the LLC members forming the LLC, or who may become members thereafter. Operating agreements are complex contracts that need to be drafted to fit the expectations of the parties and to achieve the tax and business results that the parties expect - “scrivened with precision.”A recent Delaware Chancery Court case, Miller v. HCP & Company, makes it clear why parties to operating agreements should review them carefully before they sign them. The case also contains an interesting discussion of the difference between LLCs and corporations - and makes it clear, once again, that an LLC is not a corporation.