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HOW ARE "MEMBERS" OF A LIMITED LIABILITY COMPANY DETERMINED?

The author has encountered many occasions over the years where a limited liability company, for one reason or another, did not have a written operating agreement.  In fact, there is a common misperception that single member limited liability companies, especially, do not "need" to have written operating agreements.  Both of these situations pose serious risks to persons who believe they are owners in such companies, especially if a dispute ultimately develops between the potential "members".

A recent Ohio appellate court case highlighted the potential dangers posed by these situations.  In that case, a party argued that various documents, such as income tax returns, and records from the Division of Liquor Control, should be considered by a court in determining if an individual was a member of various LLCs.  In arriving at its decision, the court noted another appellate court decision which held that to be a member of an LLC, a person's name must appear on the "company records" as one who shares in the company's profits and losses, etc.  The court at issue ultimately held that all of the LLC's records relating to "corporate governance" could be used to establish the identity of the members in an LLC.

These cases provide further evidence that every LLC should have a written operating agreement identifying its members and otherwise dealing with all relevant company matters.

I wish all of you a happy and prosperous New Year!



BACKGROUND OF AUTHOR

Mr. Petrony graduated with a Bachelor of Arts degree, summa cum laude, from Youngstown State University. Subsequently, he obtained a law degree from the Ohio State University College of Law.

Mr. Petrony practices law at The Law Offices of John F. Petrony, LLC in Poland, Ohio. He maintains a transactional practice with a primary emphasis in the fields of business law and real estate law. The business law portion of his practice is comprised, in large part, of the following areas:

  1. Business Sales and Acquisitions
  2. Mergers, Reorganizations and Conversions
  3. Commercial Transactions
  4. Limited Liability Company Law
  5. Corporate Law
  6. Business Formations
  7. Employment Law
  8. Franchise Law
  9. Internet Law
  10. Business Dissolutions
Mr. Petrony is a member of the following:

  • Ohio State Bar Association LLC Committee. This committee is responsible for drafting and amending Ohio’s LLC statute.
  • American Bar Association Committee on Partnerships and Unincorporated Business Organizations. This group participates in drafting model limited liability company and partnership legislation for use by the states.
  • Negotiated Acquisitions Committee of the American Bar Association. This committee, amongst other things, drafts model agreements for use in negotiating and documenting business acquisitions, mergers and reorganizations.
Lastly, Mr. Petrony frequently lectures on the topics of business law issues. He has presented seminars on behalf of a variety of local and national organizations, including, but not limited to, the National Business Institute and the Mahoning County Bar Association. Should you desire an in-house seminar on these issues to your group or organization, please let John know.

THE BUSINESS LAW ALERT IS INTENDED TO CONVEY GENERAL INFORMATION ABOUT BUSINESS LAW DEVELOPMENTS. THE ALERT IS NOT INTENDED TO BE, NOR SHOULD IT BE RELIED UPON AS, LEGAL ADVICE OR A LEGAL OPINION THAT CAN BE USED TO SOLVE INDIVIDUAL PROBLEMS IN ANY MANNER OR NATURE WHATSOEVER. MOREOVER, THE ALERT IS NOT AN OFFER OR SOLICITATION TO REPRESENT ITS RECIPIENTS, NOR IS IT INTENDED TO CREATE AN ATTORNEY/CLIENT RELATIONSHIP.

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