Both Francis Pileggi and Keith Paul Bishop recently addressed an interesting development in LLC law. Pileggi first:
Seaport Village Ltd. v. Seaport Village Operating Company, LLC, et al.,C.A. No. 8841-VCL (Del. Ch. Sept. 24, 2014). This decision by the Delaware Court of Chancery highlights a counterintuitive statutory rule. The Delaware LLC Act provides that each LLC member, and the LLC itself, are considered parties to an LLC operating agreement, even if they did not sign the agreement.
He goes on to quote a passage from the opinion explaining the statutory basis for that result.
Meanwhile Bishop explains that California law gets to more or less the same place by the simpler and different route of simply declaring that the LLC is bound by its operating agreement without making the LLC a party to that agreement:
California’s new Revised Uniform Limited Liability Company Act (RULLCA) defines “operating agreement” as “the agreement, whether or not referred to as an operating agreement and whether oral, in a record, implied, or in any combination thereof, of all the members of a limited liability company, including a sole member, concerning the matters described in subdivision (a) of Section 17701.10.” Cal. Corp. Code §17701.02(s). Because the statute refers only to an agreement “of all the members” and not an agreement of the members and the LLC, it seems that an LLC need not be a party to its own operating agreement. This conclusion is further reinforced by the fact that the statute also provides that an operating agreement of an LLC having only one member is not be unenforceable by reason of there being only one person who is a party to the operating agreement.
But if the LLC isn’t a party to the operating agreement, what exactly is the relationship of the operating agreement to the LLC? Section 17701.10(a) provides that the operating agreement governs, among other things, “relations among the members as members and between the members and the limited liability company”. Thus, RULLCA creates an odd situation in which LLCs are bound by contracts that they did not execute and to which they seemingly are not parties. This result is reinforced by Section 17701.11(a) which provides "A limited liability company is bound by and may enforce the operating agreement.”