Why an Operating Agreement is Important for Your Missouri LLC
Missouri LLC Operating Agreement: A Legal Requirement
In Missouri, limited liability companies are required to have an operating agreement as it establishes the options and rights to acquire or sell members’ interests in the limited liability company. The operating agreement also controls how the members deal with one another in transactions and decisions related to the LLC. The operating agreement establishes who will run the day-to-day affairs of the business and what authority that person (or group of people) will have. It is absolutely essential for your business to have a thoughtful operating agreement in place. Missouri LLC laws (Missouri Revised Statutes § 347.010 to § 347.187) govern Missouri LLCs. In particular, § 347.081 demands the members of a limited liability company to establish an operating agreement.
Case Study: Peter A. Nicolazzi v. Laura L. Bone (589 S.W.3d 638, Mo. App. E.D. 2019)
The Missouri case of Peter A. Nicolazzi v. Laura L. Bone discusses several important aspects of an LLC operating agreement. Specifically, the case was brought by the Plaintiff who, after six years of operating the LLC with his sole co-member, approached a competitor about buying his interest in the business. Consequently, Plaintiff’s co-member, the Defendant in the case, changed the locks to the business, refused to give Plaintiff a copy of the new keys, and completely excluded Plaintiff from the business.
Defendant believed that Plaintiff had breached the Missouri LLC Operating Agreement by discussing the sale of his interest in their business with a third party. The appeal court noted that even though the LLC’s operating agreement stated that
“[n]either of the Members shall, without the written consent of the other Member, sell, assign, pledge, mortgage, or otherwise transfer [his] [her] interest in the LLC,”
the paragraph did not prohibit Plaintiff from soliciting the purchase of his interest with a prospective buyer. Therefore, the appeal court found that Plaintiff did not breach the LLC’s operating agreement by discussing the sale of his interest with a third party.
This lawsuit demonstrates that LLC member rights and ownership assignment must be clearly defined in an operating agreement to prevent disputes.
Case Study: Steven Chadwick v. Robert Huntoon, et al. (634 S.W.3d 832, Mo. App. S.D. 2021)
The Missouri case of Steven Chadwick v. Robert Huntoon, et al. arose when Plaintiff was expelled from the limited liability company without cause and did not receive any compensation for his membership interest.
Plaintiff and two co-members of the LLC entered into an LLC operating agreement template in 2007, giving each member one-third interest in the business. In 2018, Plaintiff was expelled from the business but did not receive any compensation for his member’s interest in the company. The average annual membership distribution from 2013-2017 was $170,000, but Defendants believed that pursuant to the company’s Missouri LLC Operating Agreement, Plaintiff was owed only $12,000, paid in equal payments over the course of twelve (12) weeks.
The Court determined that the LLC operating agreement did not limit the remedies of the expelled member and did not state that the $12,000 compensation must be in lieu of a member’s interest or that an expelled member waived, forfeited, or was otherwise divested of that interest. Further, Plaintiff had rights to his member’s interest pursuant to Missouri LLC laws. Therefore, Defendants did owe Plaintiff for his member’s interest, totaling $473,000.
This case exhibits the importance of the fair dealing of LLC member rights in case of expulsion.
The Importance of a Missouri LLC Operating Agreement
In conclusion, an LLC operating agreement template is crucial when managing a Missouri LLC. When creating a business, members should consult with a Missouri business attorney to prepare a thorough and precise Missouri LLC Operating Agreement for their business.
