Can an unsigned agreement be binding?
Limited Liability Company Operating Agreements…
A limited liability company (LLC) operating agreement (OA) is, in the case of a multi-member LLC, an agreement of all the members of the LLC regarding the governance and activities of the company. OAs can address a variety of matters, but often focus on the financial, managerial, and transitional aspects of the company. Under New Jersey LLC law, an OA may be oral, written or implied, or demonstrated by any combination of oral statements, written documents and implications drawn from facts and circumstances.
At the risk of stating the obvious, proving the existence and content of an oral or implied agreement presents many challenges. Thus, it is prudent to reduce an OA to writing. However, what if a draft OA is circulated amongst the members, but is not signed by all of the members? Can it be binding? Well, yes and no. A New Jersey court considered these questions. The court made it clear that a draft OA does not become the OA of an LLC unless all of the members have agreed to it. However, the court did not establish a rule as to how members must indicate their agreement. Thus, insofar as an OA may be oral or implied, as well as written, an unsigned OA may be binding if it can be shown that all the members expressed their agreement in some manner other than signing the document.
A primary purpose of reducing an OA to writing is to clearly demonstrate not only the terms of the OA, but to demonstrate that all of the members have agreed to it. Preparing, but not signing, an OA will do little to avoid potentially costly future disputes. Please feel free to contact me if you would like more information about LLC OAs or a copy of the case, Premier Physician Network v. Maro.
PLEASE NOTE: This blog is merely for the general interest of the reader. It is not legal advice or opinion and it does not create an attorney-client relationship. Please call me at 973-921-0600 if you’d like to have a free initial telephone consultation or learn more about me or my practice. Thank you.