Extreme caution should be exercised before this Sample Agreement is adopted for actual use. This Sample Agreement is based on the formation of the LLC in Delaware. Certain features, such as the elimination of voting rights for nonvoting members, may not be permissible in all states. Moreover, the Sample Agreement generally requires the unanimous approval of the voting members. This is especially appropriate in small businesses (e.g., a two or three voting member LLC) to prevent the vote of one voting member from being effectively eliminated. However, a majority (greater than 50%) or supermajority (at least 67%) vote may be more appropriate in a larger LLC. Paragraph 6.4 of the Sample Agreement, which governs involuntary transfers, may only be appropriate in a family LLC.
Many other options also exist. For example, the Sample Agreement provides that voting rights are proportional to the ownership interests in voting capital. It might be desirable, in certain cases, to provide that voting rights are per capita (one vote per voting member), as exists in a general partnership. In addition, relative ownership interests are defined in the Sample Agreement by way of a formula and are identified in an attached schedule. This practice is standard in all partnership and most LLC agreements. Alternatively, the Sample Agreement could be modified so that interests are represented by "shares," as is the case in a corporation. This alternative is simpler, but could introduce the possibility of fractional shares. It may be more appropriate where only cash is contributed by each member.
Similarly, while the Sample Agreement allows for the voluntary withdrawal of a member after one year (subject to the buy/sell provisions), the Sample Agreement could be drafted to provide that a voluntary withdrawal of the member is a violation in any year.
It also is possible to adapt this Sample Operating Agreement so that it can serve as a shareholder operating agreement for a statutory close corporation. However, all of the aforementioned decisions require professional guidance.
This Sample Operating Agreement should not be used before an attorney reviews it and adapts it to the particular circumstances of the business and the owner and the legal jurisdiction.