Recently, our firm received a newsletter from one of our Washington State law firm contacts. The newsletter set forth some changes that will take place in Washington State in January, 2016 concerning limited liability companies (LLC’s).
The most interesting change I noted is: As of January 1, 2016, an LLC’s operating agreement will be construed as valid in the State of Washington if it is oral or implied. The revision to RCW 25.15-800 reads:
(7) Limited Liability Company Agreement means the agreement including the agreement as amended or restated, whether oral, implied, in a record, or any combination, of the member or members of a limited liability company concerning the affairs of the limited liability company and the conduct of its business.
This may seem to be a boon to those individuals who look at an operating agreement as an unnecessary expense. However, the persons who are to be the members (and managers) of the new entity may be in for unpleasant surprises down the road, especially dealing with issues such as ownership interests, buy-out provisions, dissolution and voting rights, to name a few, if there is no written and signed agreement dealing with these subjects.
You may wonder: Is an oral operating agreement legal in Arizona? The answer is “probably yes” since there are no statutes specifically prohibiting oral operating agreements or amendments thereto. However, our firm unequivocally recommends to all of our LLC clients that they have an operating agreement, as well as any amendments thereto, prepared and in writing. For example, could subsequent conduct over a period of time constitute an amendment to an existing written operating agreement? Risks such as this can be avoided by having a written operating agreement in place with any amendments thereto also in writing.
Lawsuits are expensive and, in many cases, usually avoidable. If you have any questions about your operating agreement, or lack thereof, please contact us.