New Jersey’s Revised Uniform Limited Liability Company Act (NJ-RULLCA), N.J.S.A. 42:2C-1 et. seq., empowers LLC members, with limited exception, by giving them the freedom to contract the rules by which the entity will be governed. In fact, NJ-RULLCA endorses this contractual flexibility and instructs courts to construe its provisions liberally “to give maximum effect” to the LLC members’ freedom of contract and to the enforceability of an LLC’s operating agreement. N.J.S.A. 42:2C-11(i). Despite this legislative stamp of approval, where the members stay silent (intentionally or otherwise) and fail to address a particular matter in the company’s operating agreement, NJ-RULLCA imposes default rules that courts will apply to resolve disputes. N.J.S.A. 42:2C-11(b).
Members control their own fate, but they tempt that fate unnecessarily if they wait until it is too late to review the LLC’s operating agreement. A 2019 appellate decision (applying California’s codification of RULLCA) provides a cautionary tale. In Hillsborough Dev. Co., LLC v. Annen, No. D074818, 2019 WL 3758948 (Cal. Ct. App. Aug. 9, 2019), the California Court of Appeals found that the statutory default rules on the removal of a manager—that is, by majority vote—applied to the LLC because its operating agreement was “silent on the issue of removing a manager.” This came as a surprise to the removed manager, who was unsuccessful in relying on a provision in the LLC’s operating agreement requiring unanimous agreement of all members “in all matters in which a vote, approval or consent of the Members is required.” According to the Court of Appeals, this generic provision was not specific enough to override the statutory default rule requiring a majority vote to remove a manager
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