Oral LLC Operating Agreements Are Now Enforceable – Be Careful
The Illinois Limited Liability Act was recently amended in ways that could adversely effect our clients who own an interest in an Illinois limited liability company. The amendment of most consequence is that an oral operating agreement is now binding on its members and managers.
This means that two or more people may decide one day that they had orally entered into an operating agreement even before the Articles of Organization of the company were filed. The terms and conditions of such an oral operating agreement would then be subject to each persons understanding of the agreement based upon memories that fade with time.
A second problem arises if and when a new person gets admitted as a member. The amended Limited Liability Company Act provides that a new member is deemed to assent to the existing operating agreement. If the existing operating agreement is oral, what terms and conditions has the new member agreed to?
Without a written operating agreement, the new member is agreeing to be bound by whatever the existing members remember the operating agreement to be.
If you own an interest in a multi-member Illinois Limited Liability company without a written operating agreement, you should call us to see how this amendment may effect you.