What is the purpose/significance of manager vs. member managed company in the Articles of Organization.

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1 MOBAR - FORMING LLC s MAY 2015 BY: Jim Borchers, InNovare Law, LC What is the purpose/significance of manager vs. member managed company in the Articles of Organization. 1. Identifies (for third parties) who has apparent authority to bind the company. 2. Identifies who (by default) has/have rights to make management decisions (internally) Except as provided in the operating agreement, and subject to subsection 3 of this section, the affirmative vote, approval or consent of more than one-half by number of the authorized persons shall be required to decide any matter connected with the business or affairs of the limited liability company. 3. Identifies authorized person - see below Explain who is an authorized person under the statute. RSMo (2) "Authorized person", manager, or member, if management of the limited liability company is vested in the members; Authority of Authorized person: 1. Authorized person may be served with service of process - RSMo Authorized to execute documents for filing Sec State - See e.g. RSMo (2) An amended or restated articles of organization, statement of change of registered agent or registered office, notice of merger or consolidation, notice of winding up, articles of termination or other document required or permitted to be filed under sections to shall be executed by an authorized person or any other person duly authorized under the operating agreement; and DRAFTING IDEA: Amendment of Articles The Articles may be amended or restated at anytime by majority vote of the Members. The Manager and/or the Company s general counsel are each authorized (either independently or together), without further instruction 1

2 or authorization by the Members, to execute and file all necessary documents to accomplish such amendment or restatement with the Missouri Secretary of State s office (and any other similar governmental office as required by any foreign state where the Company does business). 3. ONLY person authorized to transfer property - RSMo Authorized to bind company after dissolution - RSMo Notice to any Authorized Person = notice to the company - RSMo Admission or representation admissible as evidence vs. company - RSMo Right to control company: Except as provided in the operating agreement, and subject to subsection 3 of this section, the affirmative vote, approval or consent of more than one-half by number of the authorized persons shall be required to decide any matter connected with the business or affairs of the limited liability company. ************************************************************************** Oral Operating agreements are enforceable under Missouri statute. RSMo Definitions - (13) "Operating agreement", any valid agreement or agreements, written or oral, among all members, or written declaration by the sole member concerning the conduct of the business and affairs of the limited liability company and the relative rights, duties and obligations of the members and managers, if any; See also BIRKENMEIER v. KELLER BIOMEDICAL, LLC A sole member LLC may have an oral operating agreement. RSMo Definitions - 2

3 (13) "Operating agreement", any valid agreement or agreements, written or oral, among all members, or written declaration by the sole member concerning the conduct of the business and affairs of the limited liability company and the relative rights, duties and obligations of the members and managers, if any; ** Contra: Illinois ********************************************************************* A Member Interest as defined in the statute, includes governance/voting rights. RSMo Definitions - (12) "Member's interest", a member's share of the profits and losses of a limited liability company and the right to receive distributions of limited liability company assets; RSMo The interest of a member in a limited liability company is personal property and, except as provided in the operating agreement, may be assigned in whole or in part. An assignment of an interest does not entitle the assignee to participate in the management of the business and affairs of the limited liability company or to become or to exercise the rights of a member, except as provided in section An assignee that has not become a member shall only be entitled to receive, to the extent assigned, the share of distributions and profits, including distributions representing the return of contributions, to which the assignor would otherwise be entitled with respect to the assigned interest. RSMo A person may be admitted as an additional member by signing, in person or by an attorney in fact, or otherwise becoming a party to the operating agreement and by complying with the applicable terms and conditions of the operating agreement or, if the operating agreement does not so provide, upon the written consent of all members; or in the case of an assignee of the interest of a member who has the power, as provided in the operating agreement, to grant the assignee the right to become a member, upon the exercise of that power in compliance with any conditions limiting the exercise thereof. DRAFTING IDEA: Membership or Membership Rights means all of the rights, interests and entitlements of a Member; and each Member holds a unified interest, i.e. a unity of all Economic Interests/Rights and Governance Rights. As used in this Agreement the term Membership or Membership Rights is NOT, and does not refer to, the Member s Interest or interest of a member as defined and described in the Act. Units issued under this Agreement do NOT represent or include Membership Rights. 3

4 . Economic Interest or Economic Right(s) is the interest of a member or Member s Interest as defined and described in the Act, which means the right of an owner of that Economic Interest to share in the Company s profits and losses, and the right to receive distributions of Company assets. The Economic Interests of the Initial Members, collectively, is 100 percent. The owners of all Economic Interests (i.e all Members and Economic Interest Holders) must be listed on Exhibit A with his/her/its Economic Interest (vis-a-vis all other holders of Economic Interests) set forth opposite his/her/its name; which must at all times be revised and amended to reflect any change in the owners of the Company s Economic Interests. A non-member s acquisition or acceptance of an Economic Interest is an acknowledgment of his/her/its obligation to comply with all of the terms and conditions of this Agreement. An Economic Interest does not mean or include any right to vote or other right to participate in the management or governance of the Company. In this Company, one s Economic Interest is represented by and measured in Units; and each Unit has equal rights with every other Unit for sharing in profits, losses and distributions. Economic Interest Holder or Holder of an Economic Interest is a Person who owns an Economic Interest but is not a Member. No Economic Interest Holder has any right to vote or otherwise participate in the governance or management of the business and affairs of the Company, and is not a Member under this Agreement or a Member as that term is used in the Act. Governance Rights means all of a Member's rights and interests as a Member in the Company, other than Economic Rights, including without limitation: a Member s right to vote, grant or withhold consent, right to receive notice of meetings and right of access to Company information. Governance Rights are not separately assignable or transferable, i.e. Governance Rights cannot be assigned or transferred unless accompanied by the attending Economic Interest. Units do NOT represent or include Membership Rights. ************************************************************************** A member has the right to assign his/her/its member interest without other members consent. RSMo The interest of a member in a limited liability company is personal property and, except as provided in the operating agreement, may be assigned in whole or in part. ************************************************************************** 4

5 Every provision in the Articles of Organization must be included in the Operating Agreement. RSMo The articles of organization may set forth any other provision, not inconsistent with law or sections to , which are in the operating agreement of the limited liability company. RSMo Except as otherwise provided in the operating agreement, a limited liability company's articles of organization may be amended from time to time in any and as many respects as may be desired so long as its articles of organization contain only such provisions as are contained in the operating agreement at the time of making such amendment. DRAFTING IDEA: Contents of Articles Not Limited to Provisions Within This Agreement The contents and provisions of the Company s Articles are not limited to the provisions contained in this Agreement, i.e. the contents and provisions of the Articles need not contain only such provisions as are contained in this Agreement, notwithstanding any provisions in of the Act to the contrary. *************************************************************************** The operating agreement may restrict a member s right to withdraw. RSMo Withdrawal of member, how effected--withdrawal in violation of operating agreement--consequences of withdrawal A member may withdraw from a limited liability company at the time or upon the events specified in writing in the operating agreement, or at any time upon giving ninety days' prior written notice of withdrawal to the other members but, if the withdrawal violates a written provision in the operating agreement, the limited liability company may recover from the withdrawing member damages for breach of the operating agreement and offset the damages against the amount otherwise distributable to the withdrawing member in accordance with section

6 Statutory default - member voting is by percent of ownership. RSMo The articles of organization shall provide how management of the limited liability company will be vested and who shall have the right and authority to manage the affairs of the limited liability company and make all decisions with respect thereto, subject to any provisions in the operating agreement or sections to restricting or enlarging the management rights or responsibilities of one or more persons or classes of persons. 2. If the articles of organization provide that management of the limited liability company shall be vested in one or more managers, then management of the limited liability company shall be vested in such manager or managers who shall have the right and authority to manage the affairs of the limited liability company and make decisions with respect thereto to the extent provided in the operating agreement, including any provisions therein restricting or enlarging the management rights or responsibilities of one or more persons or classes of persons. The managers of a limited liability company shall be designated in the operating agreement, or designated, appointed or elected by the members in the manner prescribed by the operating agreement, and may be removed or replaced in the manner provided in the operating agreement. Managers need not be members of the limited liability company or individuals unless otherwise required by the operating agreement. If the operating agreement does not provide a manner for designating, appointing, electing, removing or replacing managers, then, the managers of a limited liability company shall be designated, appointed, elected, removed or replaced by the vote of a majority by number of the members and unless earlier removed or resigned, managers shall hold office until their successors have been designated, appointed or elected and qualified. 3. Except as provided in the operating agreement, the affirmative vote, approval or consent of all members shall be required to: (1) Amend a written operating agreement; (2) Issue an interest in the limited liability company to any person and admit such person as a member; (3) Approve a merger or consolidation with another person; (4) Change the status of the limited liability company from one in which management is vested in the members to one in which management is vested in one or more managers, or vice versa; (5) Authorize any transaction, agreement or action on behalf of the limited liability company that is unrelated to its purpose as set forth in the articles of organization, that otherwise contravenes the operating agreement or that is not within the usual course of the business of the limited liability company; or 6

7 (6) Determine, modify, compromise or release the amount and character of the contributions which a member shall make, or shall promise to make, as the consideration for the issuance of an interest in the limited liability company. 4. Except as provided in the operating agreement, and subject to subsection 3 of this section, the affirmative vote, approval or consent of more than one-half by number of the authorized persons shall be required to decide any matter connected with the business or affairs of the limited liability company. ** Statutory default for management decisions is by majority of the authorized persons. See next above question. RSMo Except as provided in the operating agreement, and subject to subsection 3 of this section, the affirmative vote, approval or consent of more than one-half by number of the authorized persons shall be required to decide any matter connected with the business or affairs of the limited liability company. *************************************************************************** In a manager managed company, only managers are authorized to make management decisions. See next above question. RSMo Except as provided in the operating agreement, and subject to subsection 3 of this section, the affirmative vote, approval or consent of more than one-half by number of the authorized persons shall be required to decide any matter connected with the business or affairs of the limited liability company. 7

8 RSMo If the articles of organization provide that management of the limited liability company is vested in one or more managers: (1) No member, acting solely in his capacity as a member, is an agent of the limited liability company;... Statutory default permits any member to call a members meeting. The Act has NO provision or default for calling meetings. The statutory default only permits members meetings to be called by a majority of the members. The Act has NO provision or default for calling meetings. The statutory default permits a member meeting to be called by the sole manager. The Act has NO provision or default for calling meetings. 8

9 Member meetings require not less than 10 days notice. The Act has NO provision or default for calling meetings. ********************************************************* Meeting notice is waived if the member attends the meeting and fails to object (at the meeting). RSMo When, under the provisions of sections to or under the provisions of the operating agreement of a limited liability company, notice is required to be given to any person, a waiver in writing signed by that person, whether before or after the time stated in it, is equivalent to the giving of notice. 2. A person's attendance at a meeting: (1) Waives objection to lack of notice or defective notice of the meeting, unless such person at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and (2) Waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless such person objects to considering the matter when it is presented. A member who withdraws has the same rights as an assignee of a member interest. ** 3. Except as otherwise provided in the operating agreement, upon the withdrawal of a member, the withdrawn member shall have no further right to participate in the management and affairs of the limited liability company and shall have only the rights of an assignee of the withdrawn member's interest in the limited liability company. **Remember the definition of a member interest 9

10 A copy of every filing with the Missouri Secretary of State must be sent to every Member. RSMo Upon the return by the secretary of any articles, notices, documents or judicial decree of amendment marked "Filed", the person or persons executing such documents shall promptly deliver or mail a copy thereof to each member unless the operating agreement provides otherwise. DRAFTING IDEA: No person who executes any document that is filed with the Missouri Secretary of State (or any other similar governmental official with such duties in another state), is required to deliver or mail a copy thereof to any member, notwithstanding any provisions in of the Act to the contrary. In a manager managed company the sole member (or a designated member if multi-member) may bind the company if the sole manager is out of the United States (and is, therefore, not available to execute a document). RSMo If the articles of organization provide that management of the limited liability company is vested in one or more managers: (1) No member, acting solely in his capacity as a member, is an agent of the limited liability company; * 10

11 Statutory Default - The initial operating agreement may be approved by 2/3 of the initial members. RSMo The member or members of a limited liability company shall adopt an operating agreement containing such provisions as such member or members may deem appropriate, subject only to the provisions of sections to and other law. RSMo (13) As used in sections to , the following terms mean: (13) "Operating agreement", any valid agreement or agreements, written or oral, among all members, or written declaration by the sole member concerning the conduct of the business and affairs of the limited liability company and the relative rights, duties and obligations of the members and managers, if any; ********************************************************** Statutory Default - The initial operating agreement may be adopted unanimously by the Managers. RSMo The member or members of a limited liability company shall adopt an operating agreement containing such provisions as such member or members may deem appropriate, subject only to the provisions of sections to and other law. ********************************************************* 11

12 Statutory Default - An operating agreement may be amended by a majority of the members. RSMo Except as provided in the operating agreement, the affirmative vote, approval or consent of all members shall be required to: (1) Amend a written operating agreement;... 12